There is a new, bipartisan drive in Congress to expand what are known as 529 education savings accounts by offering a tax credit for annual contributions to such accounts by low- and middle-income families.

A 529 plan, otherwise known as a “qualified tuition plan,” is an education savings account designed to help families set aside funds for future education costs. The plans are sponsored by States or educational institutions and are authorized by Section 529 of the Internal Revenue Code.

The Boost Savings for College Act, introduced by Senators Richard Burr (NC-R) and Bob Casey (PA-D), would provide a tax credit to low- and middle-income families who might not ordinarily save for college. It would also encourage employers to match the college savings of their employees, allow savings that aren’t needed for college to be rolled into a Roth IRA (Individual Retirement Account), and enable families with a disabled child to roll over a 529 account into an ABLE (Achieving a Better Life Experience) account.

In announcing the bill’s introduction, Senator Burr said:

“College savings accounts are incredibly popular because they are a smart way for families to save for a child’s future. … The Boost Act is a commonsense bill that will expand ways for families to save and prepare for college so that they don’t have to rely so much on debt to get a college education.”

Senator Casey called 529 plans “a proven method to help middle-class families save for their college education.”

Republicans in Congress have been pushing back against Democratic plans aimed at curbing the growth of student debt, which is now more than $1.3 trillion, with about $103 billion in default, according to the U.S. Department of Education. Such proposals range from student loan refinancing to tuition-free community colleges and public universities.
The new push to expand 529 savings plans also comes after the collapse of a contentious Obama Administration proposal (part of a tax simplification package) to phase out the accounts while increasing investments in programs for middle-class families.

Senators Burr and Casey used an omnibus spending bill to enact the tax-deferred ABLE accounts in 2014. Supporters of the 529 expansion legislation say they will look for a similar vehicle, such as a year-end tax overhaul bill, to move their new proposal forward.

For more background and legislative history, see the November 2009 issue of Congressional Digest on “Federal Student Loans.”