XPost: or.politics, seattle.politics, alt.economics
XPost: alt.politics.economics
Beware Democrat proposals that would tax 529s
from
https://www.foxnews.com/opinion/kirsten-wegner-its-national-529-college-savings-plan-day-but-watch-out-for-new-tax-proposals
Kirsten Wegner: It's National 529 College Savings Plan Day – but watch
out for new Dem tax proposals
Wednesday is National 529 College Savings Plan Day – but you might want
to think twice before celebrating.
The 529 plans are widely perceived as an incredibly helpful tool for
families attempting to save for the mounting cost of a college
education. In fact, 2018 was a record year for these savings plans, with
44 percent of parents utilizing a 529 account for college savings.
In 2018, there were 13.6 million 529 savings accounts in the U.S. and
the average size of an account was $24,153. Total investments in 529
plans reached $328.9 billion.
SIX 529 BASICS YOU NEED TO KNOW
The rising popularity of these plans for college savers is no surprise,
given that earnings in a 529 plan grow federal tax-free and are not
taxed when the money is taken out to pay for the beneficiary’s
education. On top of the federal tax exemption, over 30 states offer a
full or partial tax deduction for 529 plan contributions.
So, this must mean that 529 plans are essentially tax-free, right?
Maybe not.
The financial transaction tax (FTT), which is championed by several congressional Democrats, would place a tax ranging from 0.05-0.1 percent
on all equity, debt and derivatives trades transacted in the United States.
Democratic presidential hopeful Sen. Bernie Sanders, I-Vt., has a plan
to place a 0.5 percent tax on equities. He and his fellow FTT supporters
have framed this tax as a levy on Wall Street – but the harsh reality is
that the FTT would be a huge blow to average American families across
all income categories.
Virtually every 529 plan would be impacted when it makes an investment
on the contributor’s behalf, because each share bought or sold would be taxed.
It is truly ironic that Sanders has proposed the financial transaction
tax as a method for making college tuition-free and reducing student
debt. In fact, the funds from his 529 tax would actually come from the
savings plans average American parents have set up to pay for the
education of their children.
The 529 savings plans are used by parents to save for their children’s future. Like a retirement plan, 529 plans are tax-advantaged and give
investors flexibility in terms of contribution limits, investment
options and plans.
Age-based plans assume higher levels of risk while the beneficiary is
younger, and less risk as the beneficiary approaches college age. These
are popular amongst 529 savings plan participants.
According to Fidelity’s 529 Plan Investment Options, earlier stages of
an age-based portfolio would consist of approximately 75-95 percent
equities. A 0.5 percent tax on equities from the proposed FTT each time
stock shares are traded in these 529 plan portfolios would be a tax on
the futures of our children.
As 529 plans have started to gain traction, college tuition has
continued to increase tremendously. An FTT on 529 plans would add yet
another cost.
According to the College Board, families with students in four-year
private colleges spent almost $47,000 in 2017-2018. Additionally, the
average student debt was $29,000 in 2017.
As the race for the Democratic presidential nomination moves forward, we
have seen a common position in many of the contenders’ platforms: calls
for tuition-free education and lowering student debt.
The supporters of the FTT have painted a pretty picture that would have
us believe the tax would essentially take money directly from the
pockets of the Wall Street wealthy to help make life better for average Americans.
It is truly ironic that Sanders has proposed the financial transaction
tax as a method for making college tuition-free and reducing student
debt. In fact, the funds from his 529 tax would actually come from the
savings plans average American parents have set up to pay for the
education of their children.
In other words, Sanders would increase your college savings plan taxes
to cut your college tuition costs.
Realistically, it will be average American families that contribute
their hard-earned income to 529 savings accounts and retirement accounts
that foot the bill for the FTT.
The same people who the supporters of the FTT are aiming to protect are
the ones who will be hurt the most by such a tax. There is no disguising
that a tax on American college savers will actually hurt them by
reducing their savings.
Kirsten Wegner is CEO of Modern Markets Initiative, the education and
advocacy organization devoted to the role of technological innovation in creating the world’s best markets. She is known for her thought
leadership in advancing secure savings and investment through innovation.
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