April 29, 2016
Today, Senators Richard Burr (R-NC) and Bob Casey (D-PA) introduced the Boost Saving for College Act, which will enhance 529 college savings accounts to help more American families save for college. This legislation would provide a tax credit to low-income and middle-income families who might not ordinarily save for college, encourage employers to match the college savings of their employees, allow savings that aren’t needed for college to be rolled over into a Roth IRA for retirement, and enable families with a disabled child to rollover a 529 account into an ABLE account.
“College savings accounts are incredibly popular because they are a smart way for families to save for a child’s future,” said Senator Burr. “In the past few years, I have advocated for making college more affordable, including getting legislation signed into law that has saved student loan borrowers $36 billion. The Boost Act is a commonsense bill that will expand ways for families to save and prepare for college so that they don’t have to rely so much on debt to get a college education.”
“Saving for a college education is a substantial challenge for families that Congress should be working to make easier,” saidSenator Casey. “A college education is the surest ticket to the middle class and a family sustaining income. This bill will help more families save and ensure that more young Americans have a fair shot to attend college.”
In 2013, Senator Burr authored the Bipartisan Student Loan Certainty Act, which was signed into law and saved borrowers $36 billion over the last three school years.
College savings accounts, also known as “529 accounts,” enable families to better prepare financially for the cost of sending their child to college. These accounts allow families to save tax-free, and they can use these savings to pay for higher education expenses, such as tuition, fees, books, room and board, and computer equipment.
As the cost of higher education continues to rise, 529 accounts have become an increasingly popular and necessary tool for families to save for college so that they do not have to rely so heavily on student loans. Today, the average cost of obtaining a degree from a two-year institution is more than $19,000, and it is nearly $100,000 from a four-year university.
The Boost Saving for College Act would make 529 accounts a more attractive option by adding some significant enhancements, such as:
- Letting low- and middle-income families take advantage of the Saver’s Credit for the savings they put away for college. Low- and middle-income families can currently use the Saver’s Credit for contributions to retirement accounts. This bill would extend this credit to contributions an individual or family makes to a 529 account, boosting the savings they can put away for college. The Saver’s Credit is a nonrefundable tax credit that provides a savings match of as much as $1,000 for single filers and $2,000 for joint filers for retirement. The Boost Act would allow this savings match for 529 accounts. The amount of the credit depends on how much the household puts in the account as well as their income. For 2016, the Saver’s Credit is limited to those with incomes at or below $30,750 single, $46,125 head of household, and $61,500 joint, and is indexed to inflation.
- Encouraging employers to match the college savings of their employees. Today, many employers match their employees’ contributions to retirement. The Boost Act would allow employers to offer the same benefit to 529 accounts, with an annual match of up to $1,000. This employer match would be excluded from the employee’s gross income, which means the worker won’t be taxed when their employer makes a contribution to a 529 account owned by the employee or spouse. The beneficiary of the 529 account may be the employee, their spouse or their dependent.
- Allowing savings that aren’t needed for college to be rolled over into a Roth IRA. Perhaps a child decides not to go to college, or maybe the child earns enough in scholarships that they do not need all their college savings. Under current law, those families would be penalized for withdrawing the leftover funds. The Boost Act would allow those families to roll over such savings into a Roth IRA. In order to do so, the 529 account must have been open for at least 10 years. The 529 could be rolled over into the Roth IRA of the 529 account owner or their beneficiary.
- Enabling families with a disabled child to rollover a 529 Account into an ABLE account.Many families save for a child’s college education by opening a 529 account, sometimes before their child is even born, only to learn later that their child has a severe disability like autism. In other cases, a child is in a tragic accident and becomes severely disabled. In such instances, these families have funds trapped in a 529 that they could use to help cover their child’s lifelong expenses. If they withdraw the funds for anything other than college expenses, they face taxes on their withdrawals. The Boost Act would help these families by allowing them to rollover the funds in their 529 account to a 529A<x-apple-data-detectors://19>, or ABLE, account for their disabled child. ABLE accounts allow families to save for a disabled child’s future expenses in a tax-favored way.
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