WASHINGTON – Parents are busy prepping their high-school graduates for college — that should include catching up on the latest rules for 529 plans.
For the time being, you can tap your student’s 529 college savings plan to pay for tuition costs, room and board, books and a computer. But if you wait until next year to buy that computer, you might find the plan won’t cover it anymore.
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Families have invested about $134 billion in more than a hundred different 529 plans sold throughout the nation, according to the College Savings Plans Network, a nonprofit association that advocates for the plans. The 529 plan gets its name from the relevant section of the Internal Revenue Service code.
The stimulus bill in 2009 included a provision that allowed students to use 529-plan money to pay for computers and other equipment. Separately, the stock-market downturn prompted the U.S. Treasury Department to tweak 529-plan rules to allow for two investment changes per year, rather than just one, but that was a temporary rule change that ended in 2009.
A college-savings bill currently in the House Ways and Means committee — the Savings Enhancement for Education in College Act, or H.R. 1351 — would make permanent the rules regarding computers and the number of investment changes allowed, plus expand the current Saver’s Credit to apply to college savings.
Backers of the college-savings bill, which is sponsored by Democratic Rep. Earl Pomeroy of North Dakota, say allowing two changes per year is important, given the market’s volatility.
“While we don’t want people to move their money all the time, having two times when they can seems reasonable,” said Joan Marshall, executive director of College Savings Plans of Maryland who also sits on the board of the College Savings Plans Network.
The saver’s credit offers lower-income savers a tax credit as a reward for putting money aside, but currently it applies solely to retirement savings contributions.
According to Marshall, this same credit to families who contribute to college savings would encourage low- and moderate-income families to save for college.
Jacquelyn T. Williams, director of the college savings initiative at the New America Foundation, a nonprofit and nonpartisan public policy organization, said that simply having money stashed away for college can make a difference in whether or not a child matriculates in post-secondary education.
At a House discussion in mid-May, she said children with college funds are four times more likely to go to college.
Still, many families are hesitant to invest in 529 plans because of misperceptions, Marshall said.
For instance, she said, some mistakenly believe that money stashed in a 529 plan can only be used for tuition at four-year colleges, but those funds can be used at any accredited institution that accepts federal aid, including community colleges, technical schools and graduate schools.
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