If some of your clients are not among the 10 million 529 plan account holders nationally, it may be a good time to talk to them about changes to the program proposed in Washington, D.C., that could make these plans even more attractive. Clients who are already saving with a 529 plan will also be interested to learn about potential new benefits that may become law.
Investors using 529 plans know about the tax benefits, the flexibility in choosing among different state-run plans, and the access to a range of investment options, including age-based portfolios. But the House Ways and Means Committee is reviewing a bill that proposes further expansion of the use of 529 plans.
The bill, HR 529, which was introduced earlier this year by Congresswoman Lynn Jenkins, (R-KS), would expand the definition of qualified higher education expenses eligible for tax-free withdrawals to include the purchase of computers and educational software. It would also allow account holders to make investment changes more frequently during the year, giving them the opportunity to reallocate four times annually, up from once a year.
Another provision in the bill would allow account holders to use the Retirement Savings Contribution Credit for 529 contributions. Currently, this federal tax credit only applies to retirement plan contributions.
The bill would also allow employers to match an employee’s 529 plan contributions up to $600 annually, by providing employers with a federal tax deduction for matching contributions.
Informing clients about the proposed legislation may provide an opportunity to review their overall college savings strategy and examine current saving allocations to see if an update is needed. It is also a good time to make sure that clients are taking advantage of all of the current benefits offered by a 529 plan.
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