Rep. Kelly Co-Sponsors Bill to Strengthen College Savings Plans for Hardworking American Families

WASHINGTON — U.S. Representative Mike Kelly (R-PA) – a member of the House Ways and Means Committee – issued the following statement today announcing his co-sponsorship of H.R. 529, legislation introduced this week to expand, modernize, and strengthen tax-free 529 college savings plans.

“Even though President Obama has now abandoned his reckless idea to punish middle-income families by taxing 529 college saving plans, those of us in Congress who want to protect hardworking Americans from new taxes must remain vigilant. These savings plans make it easier for millions of households to send their children to college, which encourages more students to pursue higher education, which in turn puts young adults on a stronger path to rewarding careers. This bipartisan bill strengthens and updates this massively popular savings tool so that our nation’s families and students can continue to benefit from it.”

NOTE: The importance and popularity of 529 college savings plans have grown substantially as more and more middle-income families are using them to save for college. Since the bipartisan creation of Section 529 in 1996, these plans have expanded to nearly 12 million accounts and have resulted in college savings of more than $225 billion for American families. The Pennsylvania 529 College Savings Program consists of 13 different investment plans and helps Pennsylvanians keep pace with increasingly expensive college tuition.

H.R. 529 makes three important improvements to 529 savings plans, enhancing what is a successful model for helping students attend college. It achieves the following:

• Clarifies that computers are a qualified expense for 529 account funds: The bill permanently clarifies that computers are qualified expenses, reflecting the modern reality that a computer is a necessity for today’s college student. 

• Removes all distribution aggregation requirements: The current rules were designed for when earnings were taxed to the beneficiary at distribution. However, since 2001 the tax treatment has changed and there is no longer a policy need for such aggregation. This provision would eliminate an unnecessary paperwork burden for 529 plan administrators.
• Re-Deposit of Refunds: The bill permits the re-deposit of refunds from colleges without taxes or penalties, provided that it occurs within 60 days of the student withdrawing from his or her college. For example, this situation would occur when a student withdraws early due to illness or other reason and obtains a refund from the school. Currently, the refund would be subject to income tax on the earnings and a 10 percent penalty. 

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