College savings plans offered through the state Treasurer’s office could become much less attractive under a proposal by President Barack Obama.
The president proposes ending the tax break on college saving plans to help pay for other initiatives, such as making community college free.
Nebraska offers four so-called 529 college savings plans, named for a section of the tax code, that provide both a federal and state tax break. Under the federal tax code, money can be withdrawn from the savings plans tax free if used to pay college expenses.
The Nebraska plans have proven so popular they have drawn interest nationally. At present, more than 225,000 accounts have been opened nationwide; approximately 65,000 are held by Nebraskans. The average account totals less than $17,000. The average account held by a Nebraska resident totals $12,750.
“Those aren’t college savings plans of the multi-rich,” State Treasurer Don Stenberg tells Nebraska Radio Network. “Those are the college savings plans of middle income Nebraskans who are able to put a little bit of money away for college for their kids.”
Stenberg says grants and other aid are available for the poor and the wealthy don’t need help in financing college.
Stenberg says parents and even grandparents like the 529 plans precisely because they get the tax break when they withdraw the money for college.
“I think it’s really moving in the wrong direction to discourage people from saving for college through a 529 plan, which the president’s tax would do,” Stenberg says.
Under the plan proposed by the president, new contributions to 529 plans would be tax as ordinary income. Taxes could be deferred as the earnings grow in a college savings plan, but that break would end once families begin to withdraw the funds, according to the White House. Earnings would be treated as student income, which is taxed at a lower rate.
The Nebraska Educational Savings Trust (NEST) managed by the Treasurer’s office offers four plans: NEST Direct College Savings Plan, NEST Advisor College Savings Plan, TD Ameritrade 529 College Savings Plan, and The State Farm College Savings Plan.
AUDIO: Brent Martin reports [:45]