The Senate Finance Committee has unanimously passed measures that enhance the 529 Plan, an educational savings plan that helps parents fund their children’s college education. The 529 Plan is operated by state agencies and organizations, and withdrawals for education expenses are exempt from federal taxes.
Among the improvements added to the bill are:
- Students can use 529 funds to purchase a computer – Under the current law, students can only use the funds to purchase a computer if the college they are attending requires them to have a computer. The new measure would allow students to purchase a computer with 529 funds whether or not their schools require it.
- Taxation and the tax penalty on higher education expenses have been eliminated – Currently, when students withdraw from college, their refunds are subject to taxation and a 10% tax penalty. Under the new measure, refunds received when a student withdraws from school can be redeposited into their 529 within 60 days without penalty, allowing parents to use the funds to pay for the student’s education should they return to school at a later date, or even use it for another family member.
Lawmakers hope the increased flexibility these enhancements provide will encourage more parents to utilize the 529 Plan. The bill has strong support in Congress, with the House of Representatives having passed a similar bill, and the full Senate expected to pass this bill as well.
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