San Francisco Chronicle - (Sunday)
Progress on bills to help kids save
This year I’ve written about bills to promote savings for kids, college and retirement at the state and federal levels. As we reach the halfway point, it’s a good time to update them.
As it turns out, all three have something to do with statesponsored 529 college savings plans, although they didn’t all start out that way.
A bill that would create a state tax deduction for contributions to ScholarShare, California’s 529 plan, passed the Assembly after some significant modifications and is working its way through the Senate.
The big federal retirement bill that passed the House 4173 on May 23 and appeared headed for quick passage in the Senate has
stalled there, in part because Sen. Ted Cruz is mad that House Democrats stripped out a provision that would have let parents use 529 accounts to pay for homeschooling expenses.
Finally, the Legislature has approved Gov. Gavin Newsom’s plan to spend $50 million this year to expand child savings account programs like the one started in San Francisco when he was mayor. Half of the money would go to local and regional programs statewide and half would go toward setting up accounts for kids from lowincome families at ScholarShare.
Here’s a closer look at these measures. ScholarShare deduction: AB211 would let Californians deduct their annual contribution to one or more 529 accounts — up to $10,000 per tax return for married couples or $5,000 for singles — on their state tax returns. They would not have to itemize deductions to get this benefit. They would have to own the account, but could name a child, grandchild or anyone else as the beneficiary.
The Assembly passed the bill 780 after some major modifications. The bill now limits the deduction to taxpayers whose adjusted gross income does not exceed $150,000 (married filing jointly, head of household, surviving spouse) or $75,000 (singles). Another amendment delayed the start date from this year to 2020 and put in an end date of Dec. 31, 2024, leaving only five years to get the deduction.
It also put in a recapture provision to prevent people from putting in money, getting the deduction, then quickly taking it out to spend on something other than college expenses.
The bill passed the state Senate Governance and Finance Committee and Appropriations Committee unanimously. It’s now awaiting action Aug. 29 or 30 on all bills over a certain cost. The Franchise Tax Board estimates that the deduction would result in general fund revenue losses of $5.6 million in 201920, $12 million in 202021, and $13 million the next year. Retirement bill: On May 23, the House overwhelmingly passed HR1994, nicknamed the Secure Act. It’s designed to get more Americans covered by workplace retirement plans, especially at smaller companies that don’t offer one. If signed into law, it would be the biggest change to retirement plans since 2006.
There was tremendous momentum to get the bill passed before Memorial Day, because it had an unrelated provision that would have reversed a change to the “kiddie tax” that is hurting some Gold Star families whose children are receiving retirement benefits earned by a service member who died while on active duty.
If the Senate had passed the House version with unanimous consent, it would have gone straight to the president’s desk. But Cruz, RTexas, objected because House Democrats had stripped a provision from the bill that would have let parents use 529 plans to pay for homeschooling expenses. Since then other Republican senators have raised objections to the bill.
Senate Finance Committee Chairman Chuck Grassley, RIowa, “is encouraging his colleagues to support the Housepassed Secure Act and has asked for unanimous consent that it be passed. There are several holds on the legislation preventing it from moving forward. Sen. Grassley is working with his colleagues to get those holds lifted as soon as possible,” Grassley spokesman Michael Zona said in an email.
Surprisingly, no senators have openly objected to a Secure Act provision that would do away with a tax benefit known as the stretch IRA. It lets any beneficiary who inherits an IRA or 401(k)type account withdraw the money and pay taxes due over their life expectancy. The Secure Act would require most beneficiaries to deplete it within 10 years, which would accelerate the payment of taxes. Children’s savings accounts: Newsom is expected to sign a budget trailer bill that will use $50 million from the general fund to expand child savings accounts programs similar to San Francisco’s Kindergarten 2 College program. K2C automatically opens an account at Citibank for children entering a San Francisco public school and seeds it with $50. Families can contribute additional funds. It’s premised on the idea that kids with a savings account, even a little one, are more likely to attend college.
The state’s onetime expenditure will be split into two new programs:
The Child Savings Account Grant Program will get $25 million to support the “development and creation” of savings account programs for kids up to 10 years old run by local governments or nonprofits. About onefourth of this can go to existing programs and threefourths will go to new ones. The money could be used for administration and actual savingsaccount deposits. The California Student Aid Commission will decide who gets grants.
The California Kids Investment and Development Savings Program will get $25 million to open 529 savings accounts at ScholarShare for children from lowincome households born on or after July 1, 2020. Low income is defined as households with adjusted gross income less than $75,000, unless ScholarShare defines it otherwise.
The Secure Act would provide more people with workplace retirement plans.
Kathleen Pender is a San Francisco Chronicle columnist. Email: kpender @sfchronicle.com Twitter: @kathpender