Legislation loosening the rules around Section 529 college savings plans advanced through a key Senate committee Wednesday.
The Senate Finance Committee approved a measure that contains three changes that the House of Representatives passed earlier this year by a wide margin.
The bill, introduced by Sen. Charles Grassley, R-Iowa, would allow the tax-free savings accounts to cover the cost of computers and allow refunds to be reinvested into the plans within 60 days without penalty. S. 335 also removes distribution aggregation requirements that simplify the 529 process.
“These are common sense changes to the law that can make it that much more affordable for students to receive an education," said Senate Finance Committee Chairman Orrin Hatch, R-Utah.
He said he expects the full Senate will support the bipartisan legislation, just as the
House passed a similar bill HR 529 by a vote of 401 to 20, and that the bill can be quickly sent to President Barack Obama to sign.
In January, Mr. Obama proposed and then
backed off a plan to tax the earnings on college and other education savings plans as part of an effort to boost tax credits for those with lower incomes. The administration's plan was criticized by Republicans and Democrats for targeting 529 plans, which are popular with the middle class.
OBAMA EXPECTED TO SIGN
Mr. Obama is expected to support this legislation amending rules for 529 plans, which house about $248 billion, according to the College Savings Plans Network.
The Financial Services Institute is among the legislation's supporters.
“These three common-sense changes to the 529 College Savings Accounts will encourage more Americans to begin taking advantage of this powerful savings vehicle, thus helping to ease the financial hurdles that many families face when their children are ready to pursue higher education,” FSI chief executive Dale Brown said in a letter to the Senate Finance Committee in advance of the vote.
(More: Factors to consider when choosing a 529 college savings plan)
During discussion of the bill Wednesday, several senators expressed a need to help Americans make better use of 529 plans and other federal tax education benefits.
Amendments were offered, but none gained enough support, including one that would remove savings in 529 plans from the calculations that allow someone to qualify for Temporary Assistance for Needy Families.
Another would have required the government to give families an estimate of the higher education credits they might qualify for at the same time they are provided with an estimate of their federal student aid availability.
