By CityTownInfo.com Staff
September 11, 2009
Obama administration officials urged changes to Section 529 plans to help make college more affordable for lower- and middle-class families.
Bloomberg.com reports that the officials, including Vice President Joseph Biden, convened at a meeting of the White House Task Force on Middle Class Families that was held at Syracuse University this week. During the event, Treasury Secretary Timothy Geithner spoke about Section 529 accounts, which allow families to deposit after-tax income into college savings accounts without paying taxes on investment gains.
Geithner pointed out that according to a report that the Treasury Department prepared for the Middle Class Task Force, only 5 percent of middle-income Americans use such plans, while the majority of families with college savings accounts fall into the 90th income percentile or higher. The report recommended making the Section 529 accounts less expensive and lowering investment fees, thereby making them more attractive to families with lower incomes.
"These accounts are just not being used as broadly as they should be," Geithner noted.
Another recommendation was to limit families' maximum Section 529 account balances. Currently, states set maximum account limits, but many states allow non-residents to open up Section 529 accounts as well. This loophole allows families to conceivably set up such accounts in as many as 44 states, effectively bypassing any investment limits.
"Putting a true limit" on these contributions, said the report, would reduce tax benefits for high-income families and "potentially free up federal resources for education aid better targeted to low- and middle-income families."
Geithner, who was quoted by the Chronicle of Higher Education, noted that the recommendations to improve Section 529 accounts are aimed at encouraging "broader use, to make them cheaper, and to make them safer."
The Associated Press reports that Biden also stressed the importance of higher education. "Plain and simple," he said, "we need a better cadre of college-educated people in this country. There is no higher domestic priority. It is the single most pervasive change we can make. It affects everything, from crime on the street to our international competitiveness."