Obama’s Plan Will Tax College Savings

AP Photo/Charles Krupa
AP Photo/Charles Krupa

Based on a review by Americans for Tax Reform, it appears one way President Barack Obama hopes to provide free community college for all is by taxing the savings others are putting away to fund the higher education of their own children.

“Under current law, 529 plans work like Roth IRAs: you put money in, and the money grows tax-free for college. Distributions are tax-free provided they are to pay for college.”

Obama’s plan would change that, and “earnings growth in a 529 plan would no longer be tax-free.” In the future, they would be subject to taxation upon withdrawal, whether or not the intent is to use the money for college. In essence, the law would revert to what it was prior to 2001.

Americans for Tax Reforms looked at other details of Obama’s plan, as well. The plan would also include a capital gains rate hike, a stealth increase in the death tax rate from 40% to nearly 60%, a bank tax, plus tax increases on retirement plans, along with a new employer mandate.


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