WASHINGTON –Today, Senators Richard Burr (R-NC), Bob Casey (D-PA) and Lisa Murkowski (R-AK) introduced the Boost Saving for College Act, which will provide crucial new options for 529 college savings accounts to help more American families save more for college. This legislation would provide a tax credit to low- and middle-income families who might not ordinarily save for college, incentivize employers to match employee contributions to their college savings, allow unused savings to be rolled over into a Roth IRA retirement account, and enable families with a disabled child to rollover unused funds from their 529 account into an ABLE account.
“College savings accounts are a great way to safely put away money to ensure a better future for your child,” said Senator Burr. “I have long advocated for making college more affordable through several bills, such as the legislation to reduce interest rates for student borrowers I authored with Senator Angus King (I-ME). The Boost Act is a commonsense bill that will give families more options for preparing their children for college without going into endless debt.”
“An affordable college education is the firmest path to the middle class and a family sustaining income. Congress needs to do all it can to address the challenges that many families face in saving and paying for college,” said Senator Casey. “This legislation will help address some of those challenges by expanding commonsense savings tax credits for Pennsylvania families.”
“Alaskan families deserve to have the flexibility to meet their own needs with their own money,” said Senator Murkowski. “The Boost Saving for College Act will do just that, by helping Alaskans to afford college in more ways, and getting federal tax penalties out of their way when things do not go as planned.”
College savings accounts, also known as “529 accounts,” enable families to better prepare financially for the cost of sending their child to college. This program allows families to put their hard earned money in tax-free accounts to then pay for the vast array of higher education expenses such as tuition, fees, books, room and board, and computer equipment.
This bipartisan legislation has been endorsed by 14 higher education associations, including the American Council on Education and the North Carolina State Education Assistance Authority (SEAA).
As the cost of a college degree continues to increase, 529 accounts have become an excellent tool in order to avoid the crushing debt that can accompany student loans. Today, a degree from a two-year institution typically costs more than $19,000, and one from a four-year institution typically costs nearly $100,000.
The Boost Saving for College Act would improve the 529 account program by making several key benefits available, such as:
- Allowing low- and middle-income families to take advantage of the Saver’s Credit for the savings they put away for college. Low and middle-income families can currently use the Saver’s Credit for contributions to retirement accounts. This bill would extend this credit to contributions an individual or family makes to a 529 account, boosting the savings they can put away for college. The Saver’s Credit is a nonrefundable tax credit that provides a savings match of as much as $1,000 for single filers and $2,000 for joint filers for retirement. The Boost Act would allow this savings match for 529 accounts. The amount of the credit depends on how much the household puts in the account as well as their income. For 2016, the Saver’s Credit is limited to those with incomes at or below $30,750 single, $46,125 head of household, and $61,500 joint, and is indexed to inflation.
- Encouraging employers to match the college savings of their employees. Today, many employers match their employees’ contributions to retirement. The Boost Act would allow employers to offer the same benefit to 529 accounts, with an annual match of up to $1,000. This employer match would be excluded from the employee’s gross income, which means the worker won’t be taxed when their employer makes a contribution to a 529 account owned by the employee or spouse. The beneficiary of the 529 account may be the employee, their spouse or their dependent.
- Allowing savings that aren’t needed for college to be rolled over into a Roth IRA. Perhaps a child decides not to go to college, or maybe the child earns enough in scholarships that they do not need all their college savings. Under current law, those families would be penalized for withdrawing the leftover funds. The Boost Act would allow those families to roll over such savings into a Roth IRA. In order to do so, the 529 account must have been open for at least 10 years. The 529 could be rolled over into the Roth IRA of the 529 account owner or their beneficiary.
- Enabling families with a disabled child to rollover a 529 Account into an ABLE account. Many families save for a child’s college education by opening a 529 account, sometimes before their child is even born, only to learn later that their child has a severe disability like autism. In other cases, a child is in a tragic accident and becomes severely disabled. In such instances, these families have funds trapped in a 529 that they could use to help cover their child’s lifelong expenses. If they withdraw the funds for anything other than college expenses, they face taxes on their withdrawals. The Boost Act would help these families by allowing them to rollover the funds in their 529 account to a 529A, or ABLE, account for their disabled child. ABLE accounts allow families to save for a disabled child’s future expenses in a tax-favored way.