Jump to content
Washington Football Team Logo
Extremeskins

WSJ: Now He’s After Middle-Class Savers


nonniey

Recommended Posts

The good news is the Republicans won control of Congress so this isn't going anywhere. But it does illustrate the differences between the parties  -"The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits."  or in other words more Government power.

 

 

"

President Obama is pitching his new tax plan as a way to help the middle class at the expense of the rich. But middle-class savers are bound to notice if he achieves two of the White House’s stated goals—to “roll back” tax benefits of 529 college savings plans and “repeal tax incentives going forward” for Coverdell Education Savings Accounts.

Both plans allow parents, grandparents or anyone looking to help fund a kid’s education to contribute after-tax dollars into accounts that grow tax-free. There is also no tax when the money is withdrawn, provided it is used for qualified educational expenses such as tuition, fees, books, room and board.

Mr. Obama wants to allow the IRS to tax as income any withdrawn earnings from future 529 contributions. This would make them less attractive. The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits, when paying for college.

If the plans are closed to new investments and savers, those who stand to lose aren’t the 1%. As of June 30, 2014 there were 11.8 million 529 accounts holding $244.5 billion in assets, according to the College Savings Plans Network, a a group of state officials who administer the plans. The average account balance was $20,671. That sounds like “the middle class.”

The College Board says the average cost of tuition, fees, room and board at a private four-year nonprofit college this year is more than $42,000. So we’re supposed to believe the President is sticking it to fat cats when he targets savings plans that might cover one semester at a private college, or a full year for in-state students at public universities. This now makes you a Rockefeller on Planet Obama.

The Investment Company Institute, trade group for the mutual-fund industry, says that in 2013 households saving for college through 529 plans, Coverdell ESAs, or mutual funds held outside these accounts tended to be headed by people younger than 45. And 49% of these heads of household had fewer than four years of college. A majority of these households, 53%, earned less than $100,000.

Liberals are particularly annoyed that, depending on the state, 529s can allow people to save $300,000 or more for education. But maybe parents and relatives wouldn’t have to save so much if federal subsidies weren’t driving the cost of college to such heights. Again this year higher education costs are increasing faster than inflation, as they have for decades........"

 

http://www.wsj.com/articles/now-hes-after-middle-class-savers-1421887035

Link to comment
Share on other sites

Yeah, considering I have a pair of Coverdells for my kids that might cover one year of college, possibly two if I'm lucky, I'd like to know what the actual proposal says.

Well, the article is obviously trying to push and inflate some claims. But assuming that it's not just outright lying, . . .

The proposal would be that, when the college student takes money out of the account, the interest on whatever money you put in, after now, would be taxable income.

(And, unless the college student has more than $10,000 in taxable income, the interest will be taxed at 0%).

Link to comment
Share on other sites

http://www.nytimes.com/2015/01/23/your-money/obamas-proposed-changes-to-529-college-savings-plans-would-reduce-benefits.html?_r=0

 

 

 

White House Proposals on 529 College Savings Plans Would Reduce Benefits

President Obama is proposing a radical change to the 529 college savings plans held by millions of families, which would require those who use them to rethink their approach to college savings.

As part of his plan to simplify the tax code and help the middle class, one of the 529 plan’s most attractive benefits would be eliminated: Money could no longer be withdrawn tax-free. (The new rules would apply only to new contributions.)

The accounts, many of which are run by the states, allow people to make contributions that grow tax-free. The money can be withdrawn without the paying of capital gains taxes as long as the proceeds are used for education expenses. Many states provide state income tax deductions for contributions as well.

“I was very surprised by the Obama 529 proposal because in many ways it is anti-middle class for families trying to afford college,” said Joe Hurley, founder of the SavingforCollege.com website. “And so much of the emphasis in the Obama administration has been pro-middle class.”

But some experts said 529 plans, which are used by seven million families and hold $217 billion, disproportionately benefit the most affluent families, which can afford to save. More than 12 million accounts are in circulation, according to Strategic Insight, an investment consultant that tracks the industry. If more affluent families can afford to start saving early and often, the compounding over time enables them to avoid paying more taxes, especially those in higher tax brackets.

*Click Link For More*

 

http://blogs.wsj.com/washwire/2015/01/23/making-sense-of-the-uproar-over-obamas-529-proposal/

 

 

 

2:00 pm ET

Jan 23, 2015 THINK TANK Making Sense of the Uproar Over Obama’s 529 Proposal

 

President Barack Obama’s proposal to scale back tax breaks for college-savings accounts, the 529 plans, provoked an immediate uproar.  There’s no doubt the proposal would make future contributions to  529s much less attractive. (It doesn’t affect money already in 529s.) But the loud opposition misses the rationale for changing the way the government encourages saving for college and underscores the reasons tax reform is so hard.

 
*Click Link For More*
 
 
Link to comment
Share on other sites

The proposal would be that, when the college student takes money out of the account, the interest on whatever money you put in, after now, would be taxable income.

).

Would it be taxable if they applied the funding toward college tuition/room and board/meals/etc as intended?

Or just if there is unused funding and it is withdrawn from the account instead of used? Like if a student graduates a semester early, or if they end up not going to college?

And as with most right wing op-ed pieces, this article has a ton of fluff and very little substance. Yawn.

Edit- PCS answered my question. The proposal would eliminate a loophole that would allow people to avoid capital gains taxes using 529 accounts that they never intend to use toward education expenses. YAWN. Zzzzz.

Link to comment
Share on other sites

All it says is that when the money is withdrawn, the earnings (interest or capital gains) would count as income.

(I assume there are already penalties for withdrawing it for non-listed purposes).

I just opened a 529 on Wednesday. They told me that money withdrawn for purposes other than education (and related expenses) would be taxed. Similar to withdrawing a 401k early. Made sense to me.

So then how is this new proposal any different than what's already on the books?

Link to comment
Share on other sites

I just opened a 529 on Wednesday. They told me that money withdrawn for purposes other than education (and related expenses) would be taxed. Similar to withdrawing a 401k early. Made sense to me.

So then how is this new proposal any different than what's already on the books?

 

Under the proposal, interest (or capital gains) withdrawn for educational purposes would count as taxable income. 

Link to comment
Share on other sites

I don't know much about the 529 plans, but the Coverdells have a maximum $2,000 per year contribution.  That isn't exactly a vehicle for avoiding a ton of taxes.  And yes, I was told up front that anything not applied to college expenses would be taxed, I expect that.  So long as they aren't taxing money withdrawn for tuition, etc., this is meaningless to me.

Link to comment
Share on other sites

Under the proposal, interest (or capital gains) withdrawn for educational purposes would count as taxable income.

Yep, not in favor.

If any gains on investments are taxed, I might as weol just put it into a high yield savings account. Why invest it?

Am I becoming a republican?!!

Link to comment
Share on other sites

If any gains on investments are taxed, I might as weol just put it into a high yield savings account.

1) You seen any high yield savings accounts, lately?

2) You seen any cases where interest income is taxed at a lower rate than capital gains?

Link to comment
Share on other sites

I just opened a 529 on Wednesday. They told me that money withdrawn for purposes other than education (and related expenses) would be taxed. Similar to withdrawing a 401k early. Made sense to me.

So then how is this new proposal any different than what's already on the books?

He's proposing that even the amount withdrawn for school purposes would be taxable.  Bottom-line he is essentially proposing the elimination of these programs as they would no longer be any different from any ordinary savings account. 

 

Just be glad he didn't propose this during his first year in office (in other words be happy the Republicans took control of Congress).

Link to comment
Share on other sites

Yep, not in favor.

If any gains on investments are taxed, I might as weol just put it into a high yield savings account. Why invest it?

Am I becoming a republican?!!

Yeah you grasped the implications,  however you do know you can invest these accounts the same way (high yield savings)? I have 95% of my daughters in one stock - (APPL it has paid off so far).

Link to comment
Share on other sites

1) You seen any high yield savings accounts, lately?

2) You seen any cases where interest income is taxed at a lower rate than capital gains?

Most of the savings accounts I recall were at like 4%. Maybe less. I wasn't aware that savings account interest was taxed. I am just a middle class family man who hasn't ever had any sort of savings account though. The type of person who a 529 is designed to help.

All my life's savings is in 401k. (Another thing I'm sure will be taxed by the time im able to use it)

Link to comment
Share on other sites

Yeah you grasped the implications, however you do know you can invest these accounts the same way (high yield savings)? I have 95% of my daughters in one stock - (APPL it has paid off so far).

At the behest of the person who sold me the account we put it into a fund designed with a year 2030 payoff. I can look into it later once we get the paperwork and change it as needed if I want.

Obviously been a long time since I checked out savings accounts. I thought they were all paying like 0.75%.

Maybe I was the one mistaken. I'll check real quick.

Link to comment
Share on other sites

Strange. It doesn't really sound like part of "middle class economics," does it?

Free community college could do a lot to reduce those tuition expenses though, and more tax credit for day care could help in saving for tuition.

There is a strange sort of dissonance here (one of these things is not like the others). Maybe there is some explanation . . .

Link to comment
Share on other sites

Strange. It doesn't really sound like part of "middle class economics," does it?

Free community college could do a lot to reduce those tuition expenses though, and more tax credit for day care could help in saving for tuition.

There is a strange sort of dissonance here. Maybe there is some explanation.

You really don't get more middle class than 529s or Coverdell IRA's. You see  (under Coverdell) there is a limit on the income of the those putting cash into the account. Believe it is 110K  (190 for Joint) for Coverdell. You make more than that and the amount you can put into this account starts going down). So those saying this is a rich tax haven are not just being a little bit disingenuous they are out right lying in order to defend this proposal.  It really is an attack on the middle class.

 

(BTW we're talking a total of a max of 2k a year for Coverdells - A rich tax haven?????)

Link to comment
Share on other sites

I will point out that this:

 

"As of June 30, 2014 there were 11.8 million 529 accounts holding $244.5 billion in assets, according to the College Savings Plans Network, a a group of state officials who administer the plans. The average account balance was $20,671. That sounds like “the middle class.”

 

isn't really good evidence they are middle class.

 

That's people that have beyond normal every day expenses managed to set aside an extra $20,671 for college costs.

 

I'd be willing to be that's at least mostly the top 10%.

 

I'll read more about, it but I'd be willing to bet that most people that have the ability to put an extra $20,671 on average are not anywhere near the middle (e.g. 50%) of the income earning bracket.

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Recently Browsing   0 members

    • No registered users viewing this page.
×
×
  • Create New...