To facilitate the financing of your students’ education, the Federal government has set up the 529 plan for each State to implement. The “529″ refers to the section of the Internal Revenue Code that created these college savings plans. A 529 College Savings Plan is a tax-advantaged way for families to save money for education-related expenses. You make contributions to your plan using after-tax dollars, but earnings are tax-deferred while invested and tax-free when used for qualified higher educational expenses such as tuition, fees, room and board, books, supplies, computer technology and equipment as well as certain expenses for special needs students. With the tax reform measures of 2017, 529 plans can also be used to cover certain tuition expenses in K-12 public, private, and religious schools.
Among the over 2,500+ new bills expected to fill the 2019 calendar of the 80 Assemblymen and 40 Senators of the California State legislature is AB 350 – College Savings Tax Deduction. It is an important measure proposed by Assemblyman Steven Choi that seeks to bring an added tax advantages of 529 plans to the State that is currently being enjoyed by seven other states.
Presently seven states provide an added benefit to the 529 program, as account holders are eligible for a state income tax deduction dependent on their state of residence. For those that reside in tax parity states such as Arizona, Kansas, Maine, Minnesota, Missouri, Montana, and Pennsylvania, contributions to any 529 plan are eligible for the state’s income tax deduction. California proclaims to be aggressive toward education, but shockingly, it is NOT one of those states. AB 350 – College Savings Tax Deduction, if voted in, will change that.
While most bills target a particular industry with more regulations, fees, or both very few bills achieve the goal of “being good for all 40 million residents of the State”. Most bills are not discriminatory. They address specific perceived ills with the intent of bettering particular industries like food, health, transportation, hospitality and energy. Most fall flat, with their achievements only resulting in more red tape rather than any overall improvements. The extra costs imposed via added fees are initially absorbed by the targeted industry, but are ultimately passed on to the consumers, usually the blue-collar workers, who use the services or products provided by these industries in their everyday lives. That is a sad but true inevitability of mass governing today.
Fortunately, for the benefit of all 40 million residents of the State, the intent of AB 350 is to alleviate student debt and financial hardship by bringing California up to par with the top 529 plans in the nation. By allowing California residents a state income tax deduction for those contributions to 529 plans, more money will be saved for future students and these future students can enjoy an education without the burden of debt and loans crippling recent college graduates.
The 529 plan is an excellent way to help your child, grandchild, or loved one save for college or K-12 tuition expenses. Here’s how it works. You contribute to an account that you control on behalf of a specific beneficiary. You can withdraw the money tax-free anytime—as long as it’s used to pay qualified educational expenses at any eligible private or public college, university, graduate, or vocational school anywhere in the U.S. The 2017 tax reform measures expanded the use of 529 college savings plans to save for tuition expenses at K-12 private, public, and religious schools.
Currently California’s 529 plan ranks 10th in the nation out of all college savings plans. While this is great, California is falling behind other plans partly because California is the only state out of the top 15 to NOT allow tax deductible contributions. In the effort to reduce student debt and enhance financial planning, student college 529 plans allow friends and family to donate money throughout the life of the student to an account that grows tax free and issues funds tax free to the student when they enter their higher education. The funds from these plans pay for everything including tuition, food, board, computers, text books, and much more.
Despite improvements in educational attainment rates, America still ranks 10th in the world in the share of young adults who have finished college. Equity gaps are a major reason for this result. America’s white young adults have attainment levels that would rank fourth internationally. However, black and Latino attainment would rank 28th and 35th internationally, respectively. By embracing the advantages of AB 350 – College Savings Tax Deduction, California will be rewarded the opportunity to enhance the graduation rates of its students.
Many of California’s technical firms are clamoring to fulfill their STEM staffing needs. STEM is a term used to group together Science, Technology, Engineering and Mathematics academic disciplines. In an environment of cellphones, tablets and social media properly handled by learned professionals, these devices can prove essential in navigating the hi-tech world of business today. Fact is, the pace of innovation has never been quicker. Technological advances almost seem commonplace. And only the people who dare to dream big–many of whom work in STEM-related industries–have any idea of what might come next. Crushing student debt does not have to be part of it.