Expiring tax laws pressure college savings, but not 529 plans

Expiring tax laws pressure college savings, but not 529 plans

While several tax provisions set to expire this year are putting pressure on college savings, there are no legislative changes currently proposed that would impact 529 savings plans.

If Congress does not act, the contribution limits for Coverdell education saving accounts will be reduced after December 31, 2012. The current maximum contribution is $2,000 per student. Beginning in 2013, the maximum contribution amount is set to drop to $500.

Other tax advantages scheduled to expire at the end of 2012 as part of the Bush-era tax cuts include:

  • The American Opportunity Tax Credit, which provides taxpayers a tax credit of $2,500 per student
  • The ability to deduct interest on student loans up to $2,500

Tax provisions around 529 savings plans are not affected by these legislative actions.

In fact, with the recent discussion around outstanding student loans reaching record levels, and the debate over whether to allow federal student loan interest rates to rise, it may be an opportune time to discuss the distinct tax and estate-planning advantages of 529 savings plans.

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