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Barack Obama 529 Plan Change Proposal

Barack Obama has proposed changes to 529 plan savings accounts. These changes would make them much less benificial to many account owners.

[UPDATE 1/27/15: Obama has decided to withdraw his proposal for reducing tax benefits on 529 plans. It appears that no adverse changes are on the table for your 529 plan.]

One of the key benefits to 529 plans is the ability to withdraw money from them tax free if the funds are used to pay for higher education. Obama proposes scrapping this tax benefit.

Earnings on 529 investments would be tax-deferred, but you'd have to pay taxes on the gains when they are withdrawn. The changes would only apply to new deposits, not ones you've already made.

Obviously, this is bad news for people saving for college with a 529 plan. The good news for 529 plan owners is that the proposal is unlikely to make it through the opposition-controlled congress.

Another thing to think about: state tax advantages will still exist even if federal tax advantages are reduced.

For example, the upfront state tax advantages through deductions and the tax-free withdrawals found in the Utah plan will not be affected.

529s.com will keep you posted if legislation progresses. 

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