Community Colleges

As Dick Vitale would say...

The bottom line is CCs play an important part in the educational system, and we think opening these up to more people can only make things better.

 

You'll get no argument from me there ...

I'm not so sure about this.

 

I suppose neither plan is going anywhere, but it's interesting that in addition to the proposal make the first two years of community college free, the President is also proposing to take away the tax benefit of 529 college savings plans:

President Obama is proposing a radical change to the 529 college savings plans held by millions of families, which would require those who use them to rethink their approach to college savings.

As part of his plan to simplify the tax code and help the middle class, one of the 529 plan’s most attractive benefits would be eliminated: Money could no longer be withdrawn tax-free. (The new rules would apply only to new contributions.)

The accounts, many of which are run by the states, allow people to make contributions that grow tax-free. The money can be withdrawn without the paying of capital gains taxes as long as the proceeds are used for education expenses. Many states provide state income tax deductions for contributions as well.

“I was very surprised by the Obama 529 proposal because in many ways it is anti-middle class for families trying to afford college,” said Joe Hurley, founder of the SavingforCollege.com website. “And so much of the emphasis in the Obama administration has been pro-middle class.”

But some experts said 529 plans, which are used by seven million families and hold $217 billion, disproportionately benefit the most affluent families, which can afford to save. More than 12 million accounts are in circulation, according to Strategic Insight, an investment consultant that tracks the industry. If more affluent families can afford to start saving early and often, the compounding over time enables them to avoid paying more taxes, especially those in higher tax brackets.

“They primarily provide a subsidy to people who would save in other forms anyway,” said Sandy Baum, a senior fellow at the Urban Institute.

http://www.nytimes.com/2015/01/23/y...lege-savings-plans-would-reduce-benefits.html

 

The 529 is overrated anyway. You can withdraw from an IRA for education expenses regardless of your age, which gives flexibility to use it for education or not. The tax benefit of a 529 is nice, but the investment choices are so limited that you'll probably do better with regular old mutual-fund investing and paying the taxes.

(Others who have paid attention to this: Am I dreaming, or was the main benefit of the 529 once upon a time that the withdrawals were taxed as income but at the student's tax rate? Has it always just been a straight tax-exempt situation?)

 

Withdrawals for college expenses weren't to be taxed at all. Secondly, many states (529's are really state plans) made contributions (state) tax-deductible. Those were the (sort of) original carrots.

 

But the President’s plan would only apply the new taxes to withdrawals of money contributed to these accounts in the future. All past contributions to 529 plans would continue to grow and then be withdrawn tax-free to pay for school. This is no doubt a relief to families that have already managed to save significant sums. And it happens to fit nicely in the financial plan implemented by the residents of 1600 Pennsylvania Avenue, a household of two parents and two daughters.

According to a 2009 report in the Journal, in 2007 “the Obamas took advantage of a unique feature of 529 plans that allows account owners to front-load five years’ worth of contributions, $240,000 in total for the two girls.” No doubt these investments took a hit during the financial crisis. But given the stock market recovery since the spring of 2009, we imagine the Obama family has built educational resources that most middle-class families can only dream of.

We would compliment the President on his financial planning and thoughtful parenting in building up these assets tax-free. But his latest policy proposal makes us wonder why he won’t let the next generation of savers do the same.

The First Family’s 529 Windfall - WSJ

 

Yeah, it's the district lines that had people sprinting away from the Democrat Party two months ago. Yeah, that's it!!

 

And look where he is now ...