President Obama has officially dropped the proposal outlined in his recent State of the Union Address that would eliminate the tax advantage of 529 investment programs after facing severe push-back from lawmakers on both sides of the aisle and parents across the country.
Per the proposal, any money earned from future contributions to 529 college savings plans would have been subject to a tax. That revenue would have offset the cost of expanding the American Opportunity Tax Credit, which gives a tax break for higher-education expenses of up to $2,500 per student. Administration officials say the majority of families that would have lost a tax break on a 529 plan would have gained a break from the expansion of the AOTC tax credit. Critics warned the proposal would inequitably tax middle-class families at a time when college affordability is a significant issue.
The director of Washington State’s 529 program, called the Guaranteed Education Tuition plan (GET), shared concerns with Obama’s proposal in a Seattle Times article, which can be viewed here. The New York Times coverage of the Administration’s backpedaling can be read here.