According to a report on CNBC.com, a recent announcement by two US representatives could offer serious benefits for current and prospective college students, recent graduates, and their parents, including those who are trying to pay off student loans. Lynn Jenkins, R-Kan., and Ron Kind, D-Wis., introduced a bill in the House of Representatives on January 13 that would increase access to tax-advantaged college savings plans (529 plans) and also permit their use for paying off education debt.
A 529 plan allows you to set up a savings or investment account with earnings exempt from federal and most state taxes. Withdrawals also do not incur taxation, as long as they are used for eligible college expenses, including tuition and room and board, according to SEC.gov. The new legislation proposed by Jenkins and Kind would expand the permissible use of withdrawals from 529 plans to cover payments on student loans—welcome news for graduates these days, many of whom are struggling under historically high student loan debt burdens. Previously, payments on student loan debt were not considered qualified disbursements and incurred withdrawal penalties. H.R. 529, as drafted by Jenkins and Kind, would change that.
Jenkins and Kind’s bill also aims to expand availability of 529 plans in the workplace by allowing exclusion of up to $100 employer contributions. To qualify, the contribution must be made to an account that lists an employee or family member as beneficiary, and it must come from a payroll deduction program at the place of employment. The bill would also expand the tax credit received by small employers for setting up retirement plans, offering a tax credit equal to the expenses incurred to establish a payroll deduction to fund 529 plans for employees.