The Boost Saving for College Act could entice more people to contribute to 529 plans.
Some proposed changes to tax legislation were recently introduced that could make 529 accounts more flexible. These changes could also help make college saving easier and more affordable for low- and middle-income households.
The Boost Saving for College Act, which was introduced by Sens. Richard Burr, R-N.C.; Bob Casey, D-Pa.; and Lisa Murkowski, R-Alaksa, would amend the Internal Revenue Code to modify the tax treatment of 529 plans. Here’s a look at how some of the proposed changes would work, and their implications for 529 account holders.
The Saver’s Credit
One proposed change is that 529 contributions would be eligible for the Saver’s Credit.
This proposed credit would go a long way toward helping lower- and middle-income households contribute to a 529 college savings plan, said the chair of the College Savings Plans Network, Alabama state Treasurer Young Boozer.
Currently, the Saver’s Credit works like this: You might be eligible for at least a partial credit if you earn less than $31,000 (less than $62,000 if you’re married filing jointly) and contribute to a tax-sheltered retirement account, such as an IRA, 401(k), 403(b), or 457(b). Aftertax contributions such as a Roth IRA or aftertax 401(k) also count, but rollover contributions are not eligible for the credit.
The amount of the credit is 50%, 20%, or 10% of your retirement plan or IRA contributions up to $2,000 ($4,000 if married filing jointly), depending on your adjusted gross income (reported on your Form 1040 or 1040A)….
WASHINGTON, D.C. – The National Association of State Treasurers (NAST) announced today that it has been appointed to the Advisory Council of the U.S. House of Representatives Task Force on Intergovernmental Affairs, a bipartisan organization focused on balancing the interests of federal, state, local and tribal governments. In a statement, NAST’s President and Oklahoma State Treasurer Ken Miller said:
The National Association of State Treasurers would like to thank Speaker Ryan and Leader Pelosi, as well as Chairman Bishop, for inviting our organization to join the Task Force on Intergovernmental Affairs. This bipartisan effort will help strengthen and streamline cooperation between local, state and federal authorities, while providing us with the unique opportunity to reach across jurisdictional lines to solve some of America’s greatest fiscal challenges.
Whether NAST is working to improve our country’s aging infrastructure, help families save for the rising cost of higher education, or enhance state pensions, bank operations and financial literacy programs, we know that real progress is made when elected officials collaborate to achieve a common goal. We look forward to working alongside Speaker Ryan, Leader Pelosi and this bipartisan coalition to address some of the most pressing issues facing our constituencies.
The Task Force on Intergovernmental Affairs Advisory Council is comprised of the following member organizations:
· American Legislative Exchange Council (ALEC)
· Council of State Governments (CSG)
· International City/County Management Association (ICMA)
· National Association of Counties (NACo)
· National Association of State Treasurers (NAST)
· National Association of Towns and Townships (NATaT)
· National Conference of State Legislatures (NCSL)
· National Congress of American Indians (NCAI)
· National Governors Association (NGA)
· National League of Cities (NLC)
· State Policy Network (SPN)
· U.S. Conference of Mayors (USCM)
· Western Governors’ Association (WGA)
Bloomberg Government – State Treasurers Group Joining Tax Talks on Capitol Hill
(BNA) — The National Association of State Treasurers is taking a seat on a U.S. House advisory council with plans to press for the tax exemption for municipal bond interest and improvements to college savings plans.
“We are pleased to join a bipartisan group meant to increase cooperation among local, state, and federal governments,” Ken Miller, Oklahoma’s state treasurer and president of the National Association of State Treasurers (NAST), told Bloomberg BNA. “We will discuss tax reform, and the municipal bond exemption is an important item for us.”
NAST announced today that it was appointed to the advisory council of the House’s Task Force on Intergovernmental Affairs yesterday by Speaker Paul D. Ryan (R-Wis.) and Minority Leader Nancy Pelosi (D-Calif.). The bipartisan council was established this summer to seek input from state and local governments on issues ranging from tax reform to infrastructure…
WASHINGTON — State treasurers will get a chance to weigh in as a U.S. House task force on intergovernmental affairs continues its work.
The National Association of State Treasurers will join an advisory council to the Speaker’s Task Force on Intergovernmental Affairs, the association’s president, Ken Miller, who is also Oklahoma’s treasurer, said Wednesday. “NAST really does welcome the opportunity,” Miller added. Other state and local government groups were previously appointed to the council.
House Speaker Paul Ryan and House Minority Leader Nancy Pelosi announced the formation of the task force earlier this year. The panel of House lawmakers met for the first time in June. Its members include seven Republicans and six Democrats.
Preserving the tax exempt status for municipal bonds is a key topic that the state treasurers plan to raise in their discussions with the task force, according to Miller. “That’s really the issue that NAST has been most interested in at that federal level,” he told Route Fifty by phone.
But Miller stressed there will be topics other than the municipal bond tax break on NAST’s radar as the group works with the panel of lawmakers…
As Congress and the administration continue to work to overhaul the nation’s broken tax code, Senate Finance Committee Chairman Orrin Hatch (R-Utah) today called on tax stakeholders to provide ideas, proposals, and feedback on how to improve the American tax system.
After years of committee hearings, public statements, working groups, and conceptual exercises, Congress is poised to make significant steps toward comprehensive tax reform,” Hatch said in a letter. “Members from both parties have acknowledged the shortcomings of our current tax system and the need for meaningful reforms to encourage economic growth and alleviate many of the burdens imposed on hardworking taxpayers…As we work to achieve those goals, it is essential that Congress has the best possible advice and insight from experts and stakeholders.
NAST has submitted a comment letter to the chairman with the “strong recommendation that Congress maintain the current tax treatment for municipal bonds,” stressing that changes could “inhibit the ability of state and local governments to continue leading in development of and investment in critical infrastructure throughout our country.”
Three quarters of all public infrastructure projects in the United States are built by the states and local governmental entities. Tax-exempt municipal bonds are the primary tool that state and local governments use to finance highways, bridges, transit systems, airports, water and wastewater systems, schools, higher education facilities, and other public infrastructure.
CSPN has submitted a comment letter as well where they strongly encourage him “to consider the importance of post-secondary education to our economy.”
These recommendations include retaining the current federal tax exemption afforded to earnings on 529 accounts and prioritizing tax policies to support saving for college. In addition to adopting current and past legislative initiatives to make saving in a 529 plans even more attractive to moderate income families and remove some of the current disincentives to college savings. These proposals are reflected in legislation introduced by Senators Richard Burr (R-NC) and Bob Casey (D-PA) and in the House of Representatives by Reps. Lynn Jenkins (R-KS) and Ron Kind (D-WI).
SEC Summary and Background:
The Securities and Exchange Commission (“Commission” or “SEC”) has published proposed amendments to the Municipal Securities Disclosure Rule (Rule 15c2-12) under the Securities Exchange Act of 1934 (“Exchange Act”) that would amend the list of event notices that a broker, dealer, or municipal securities dealer (collectively, “dealers”) acting as an underwriter in a primary offering of municipal securities must reasonably determine that an issuer or an obligated person has undertaken, in a written agreement or contract for the benefit of holders of the municipal securities, to provide to the Municipal Securities Rulemaking Board (“MSRB”).
NAST has submitted formal comments.
Washington, DC — As Congress prepares to take on the issue of comprehensive tax reform, Congressmen Randy Hultgren (IL-14) and C.A. Dutch Ruppersberger (MD-02), Co-Chairmen of the Congressional Municipal Finance Caucus, have again sent a bipartisan letter to leaders of the House Ways and Means Committee in support of a critical tool that helps local and state governments finance new roads, schools, hospitals, fire stations and more. Also signed by 154 of their colleagues (95 Democrats, 61 Republicans total), the letter asks leadership to reject any proposal to cap or eliminate the deduction on tax-exempt municipal bonds used to finance the vast majority of infrastructure projects in America’s communities.
Nearly two-thirds of core infrastructure investments in the United States are financed with municipal bonds. Proposals previously submitted by federal officials have limited the value of tax benefits for municipal bonds, or eliminated the tax exemption on municipal bond interest altogether.
“Municipal bonds are a lifeline to local communities looking to expand a hospital or repair their infrastructure,” said Congressman Hultgren. “These tools of ‘fiscal federalism’ allow municipalities to raise their own funds tax-free, using their own expertise and avoiding the heavy bureaucracy of the federal government. We should preserve this Main Street financing tool for municipalities intimately connected to the needs of their communities.”
As a former county councilman, county executive and president of the Maryland Association of Counties, Congressman Ruppersberger believes that tax-exempt bonds are among the most efficient ways to fund critical infrastructure projects that have created hundreds of thousands of jobs.
“If the federal income tax exemption is eliminated or limited, states and localities will pay more to finance projects, leading to less infrastructure investment and fewer jobs,” Congressman Ruppersberger said. “Worse, they will be forced to shift costs to their main revenue source – property taxes – hitting the already-suffering real estate market and the wallets of American homeowners.”
Municipal bonds have funded more than $1.9 trillion worth of infrastructure construction. This financing went to the construction of schools, hospitals, airports, affordable housing, water and sewer facilities, public power utilities, roads and public transit. In 2015 alone, more than $400 billion in municipal bonds were issued to finance the projects that touch the daily lives of every American citizen and business.
In Illinois, municipal finance has helped fund key infrastructure improvements:
· Red Gate Bridge, St. Charles: Without the tax exemption, the City of St. Charles would pay an additional $619,000 in interest costs following the construction of the bridge in 2011.
· Illinois water infrastructure: Communities across the state in 2016 issued bonds to fund improvements in drinking water and wastewater projects. Cities and towns would pay an additional $262.3 million in debt service costs without the exemption, a 25 percent increase.
· Presence Health: This Illinois-based hospital and senior living care provider last year was issued $1 billion in bonds by the Illinois Finance Authority for facility improvements that are critical to serving Illinois residents. Presence is among the largest Medicaid providers in northern Illinois.
The full letter signed by all 156 Members of Congress is below:
Dear Chairman Brady and Ranking Member Neal:
As Congress considers tax reform and infrastructure financing, we, the undersigned, write to express our strong support for an already potent tool already in hand – the tax-exempt municipal bond. For more than a century, states and local governments have depended on this reliable and efficient means of financing.
Nearly two-thirds of core infrastructure investments in the United States are financed with municipal bonds. In 2015 alone, more than $400 billion in municipal bonds were issued to finance the projects that touch the daily lives of every American citizen and business. They are the roads we drive on, schools for our children, affordable family housing, water systems that supply safe drinking water, courthouses, hospitals and clinics to treat the sick, airports and ports that help move products domestically and overseas, and, in some cases, the utility plants that power our homes, businesses, and factories. These are the pro-growth investments which spur job creation, help our economies grow, and strengthen our communities.
A combination of local control and local responsibility makes municipal bonds an incredibly effective and efficient tool. Voters throughout the country overwhelmingly support tax-exempt municipal bonds, which are either approved by locally-elected officials or directly through bond referenda – fiscal federalism at its finest. This must help explain why the default rate is less than 0.01%. Federal tax exemption reduces the cost of issuing municipal bonds, but it is these voters who will pay the interest and principle on this debt. As a result, over the last decade overall state and local borrowing has actually declined in proportion to the economy, while still financing more than $2 trillion in new infrastructure investments. And, if simply left alone, municipal bonds likely will finance another $3 trillion in new infrastructure investments by 2026.
Furthermore, millions of Americans depend on municipal bonds for their economic security, and invest in them because of their low-risk nature. Nearly three-quarters of individual investors earn less than $200,000 per year and more than three-quarters are 55 or older. Businesses also rely on municipal bonds as a safe, stable, long-term investment.
In conclusion, changes to the tax-code should recognize the vital role of tax-exempt municipal bonds. Any changes under consideration to the tax exempt status that would increase the cost of financing for states and local government should be provided very careful consideration. We believe the current tax-exempt status contributes to efficient economic growth that benefits all Americans.
Through the Public Finance Network, NAST recently signed onto a letter sent to members of Congress on the importance of retaining the tax exemption for municipal bonds.
“For more than 100 years, the organizations listed above have consistently depended on the preservation of the municipal bond tax exemption as a fundamental component of our nation’s intergovernmental partnership. It is the bedrock by which State and local governments, authorities and nonprofits of all sizes can cost effectively access the capital markets and in turn provide essential infrastructure for their citizens.”
VIEW THE LETTER
NAST continues to support the development of Electronic Municipal Market Access (EMMA). Transparency and timely disclosure of relevant information in the municipal securities market is in the best interest of all participants. NAST is constantly working with other organizations and associations to better define what financial, operating and other information is relevant and useful to the market recognizing the significant differences of issuers by size, sector and frequency of issuance. We understand that the Government Finance Officers Association (GFOA) has submitted its own comments regarding the MSRB’s Strategic Priorities document. In working with GFOA, we have decided to make some similar suggestions for EMMA improvement.
NOW, THEREFORE BE IT RESOLVED, that the National Association of State Treasurers and its affiliate, the College Savings Plans Network, urge the President and the Congress of the United States to pass these three bills (or substantially similar bills in subsequent Congresses) in a timely manner to enhance and expand opportunities for individuals with disabilities and their families to save for their future needs in ABLE programs.