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Congress Changed 529 College Savings Plans, And Now States Are Nervous

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  • Congress Changed 529 College Savings Plans, And Now States Are Nervous

    https://www.npr.org/sections/ed/2018/01/08/575167214/congress-changed-529-college-savings-plans-and-now-states-are-nervous

  • #2
    What a bunch of boo-hoo nonsense. If they need more revenue they can just reduce the deduction or credit offered. People use the 529 for tax-advantaged growth too. NPR also completely ignores the fact that escalating tuition drives more people to look to 529 savings, which has been going on long before the tax law was signed into effect.

    Anyone remember that story about the $200k income family living in well-off suburbia who was going to "suffer" because SALT was going away? The bias here is clear.

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    • #3
      States make their own bed.  Has nothing to do with Fed on their own taxation/breaks.   That's why while it hurts us significantly, fundamentally, SALT shouldn't be a tax break at the Fed level.

      If states were banking on limited 529 participation, that's really their own risk that more folk are going take advantage of it.  Revoke the benefit or limit the match to College -- they have the power to do that.

      My hope is California GIVES us something like that

       

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      • #4
        The states have a point, though a small one at best imo.  This was dropped on them at the last minute (and everyone else, so still equal opportunity) and the changes certainly impacts the state's policy goals as it relates to their 529's (a tax deduction/match or combination thereof).  That being said, for 2018 the states will be working to create/pass legislation that closes the loopholes in terms of K - 12 while preserving the overall policy goal of 529's for long term savings/college education funding.

        From the 'cost' to the states, given the article stated no numbers supporting either at the state level of in aggregate the tax benefit, it will be a way for some states to attempt to bludgeon through tax/fee increase of say $100 Million to 'preserve' a $5 million benefit offered by the state.  I can certainly could see people looking to use 529 money (versus the $2K in place through Coverdale) for k - 12 education, especially in areas with poorly rated schools and alternatives (private/charters) are available.  Of course, these parent's choices conflict with another state legislative policy goal, keeping teacher's union's happy.

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        • #5
          529s definitely became more attractive.  But it's no where near as big a deal as these articles are making out.  In my state, if I deduct the full amount every year, it's only a $288 savings per child.  That's nice but hardly some huge supplement.  That said, I don't plan to leave that on the table considering my kids will be going to parochial school.

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          • #6
            This is really nothing new. CA, NJ and AL do not have any tax provisions for HSAs. Many states have estate tax limits far below the federal limits before they were doubled in the tax reform. There are plenty of states that carve out exceptions from various sections of the federal tax code.

            I expect teacher's unions to go ballistic over this. I expect the bluest of the blue states to enact some legislation to prevent getting a state tax benefit from private school tuition. The problem is it is the distribution and not the contribution that is involved. I would expect some states will just add this to their recapture provisions.

             

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            • #7
              Bad deal for people maxing these plans already for the original intended purpose (like us). Very much doubt my state will keep its very generous tax savings in the setting of increased usage-- states are already scrambling for cost-savings because of lower projected federal money and the pressure they're feeling to reduce their SALT with the deduction limit.

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              • #8
                You're capped at $10K per student per year for K-12.  That won't go very far for private school tuition in San Diego (although every bit helps).  Still a good bit more useful than the $2K limit with Coverdells.

                I could see states excluding K-12 use from state tax credits or deductions.  Frankly it seems like much of the concern is from the school unions versus this minor tax deduction being the straw that broke the camel's back in otherwise profligate, shaky states like Illinois.

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                • #9
                  Quick follow up:  my kids are going to public schools at least through elementary school.  Probably through high school.

                  For the $22K per year that some of the higher rated private schools charge for K-5, you could do quite well funding a 529 for college.  1st through 5th would be $110K, with another seven years for the money to grow tax free before freshman year at college.  I'm pretty sure you could pay for four years of undergrad at just about any college in the country at that rate!

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