Congress of­fers re­lief for col­lege tu­ition bills

The Denver Post - - SUCCESS - Steve Rosen Kids & Money

Congress found a soft spot in its heart at the end of 2015 for mil­lions of par­ents look­ing for all the help they can get to cover ris­ing col­lege costs.

Tucked in­side the mam­moth tax and spend­ing pack­age passed Dec. 18 were two fam­ily-friendly tax ben­e­fits that have long had bi­par­ti­san sup­port. And with Pres­i­dent Obama’s sig­na­ture on the Pro­tect­ing Amer­i­cans from Tax Hikes Act of 2015, fam­i­lies sock­ing away money in state-spon­sored 529 col­lege sav­ings plans can take im­me­di­ate ad­van­tage of the changes.

Many will also con­tinue to ben­e­fit from the Amer­i­can Op­por­tu­nity tax credit, which was set to ex­pire af­ter 2017. Law­mak­ers made that tem­po­rary tax ben­e­fit per­ma­nent.

The 529 pro­vi­sion con­tains two sig­nif­i­cant changes:

n With­drawals from the education sav­ings plans will now be al­lowed for com­put­ers and re­lated tech­nol­ogy. Un­der the old law, tax ben­e­fits ap­plied only to “qual­i­fied” higher education ex­penses, in­clud­ing tu­ition, room and board and books.

With­drawals from the education sav­ings plans will now be al­lowed for com­put­ers and re­lated tech­nol­ogy.

n Stu­dents who re­ceive cer­tain tu­ition re­funds, such as when they with­draw from school be­cause of an ill­ness, can re­de­posit the money in their 529 ac­count with­out neg­a­tive tax im­pli­ca­tions. One caveat: the trans­fer must be com­pleted in 60 days.

An­other re­vi­sion re­moves some tech­ni­cal de­tails that 529 sup­port­ers say should elim­i­nate un­nec­es­sary pa­per­work and other out­dated ad­min­is­tra­tive bur­dens.

The changes are retroac­tive to the be­gin­ning of 2015, col­lege sav­ings or­ga­ni­za­tions said.

Savers have opened more than 12 mil­lion 529 ac­counts, with about $250 bil­lion in funds ear­marked for col­lege, ac­cord­ing to the non­profit Col­lege Sav­ings Plans Net­work.

Con­tri­bu­tions to the ac­counts are not tax de­ductible. But once the money is in­vested, it can grow and even­tu­ally be with­drawn with no tax on the earn­ings as long as the funds are spent on those qual­i­fied ed­u­ca­tional ex­penses. Many states of­fer in­come tax breaks as well.

While the changes in the 529s are sig­nif­i­cant, sup­port­ers say Congress still needs to ad­dress other is­sues about the ac­counts. Mary Mor­ris, chair­woman of the non­profit Col­lege Sav­ings Foun­da­tion, is lob­by­ing for more in­cen­tives to en­cour­age em­ploy­ers to of­fer em­ploy­ees ac­cess to 529 plans in their work­places, more fre­quent re­bal­anc­ing of in­vest­ments in the ac­counts and flex­i­bil­ity to roll over un­used 529 funds into Roth IRAs or sim­i­lar sav­ings ac­counts for in­di­vid­u­als with dis­abil­i­ties.

By re­mov­ing the tem­po­rary sta­tus from the Amer­i­can Op­por­tu­nity tax credit, Congress will elim­i­nate con­fu­sion about the pro­vi­sion dur­ing tax sea­son.

Con­sid­ered by many to be the best ed­u­ca­tional tax break, Amer­i­can Op­por­tu­nity pro­vides up to $2,500 in tax cred­its on the first $4,000 of qual­i­fy­ing ed­u­ca­tional ex­penses, which in­cludes course ma­te­ri­als, sup­plies, equip­ment and tu­ition. The credit ap­plies to all four years of un­der­grad­u­ate col­lege. The el­i­gi­bil­ity thresh­old is as high as a mod­i­fied ad­justed gross in­come of $80,000 for sin­gle fil­ers and $160,000 for joint fil­ers, be­fore the credit is re­duced. Ques­tions, com­ments, col­umn ideas? Send an email to srosen@kc­star.com.

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