After a national backlash that included criticism from Mississippi Treasurer Lynn Fitch, President Obama has backed off a plan to tax the popular 529 college savings plans.
The Washington Post reported Tuesday night that Obama abandoned the tax plan after a mountain of criticism from lawmakers and parents alike. The Post characterized the rollback as “a major political miscalculation” in that it called for removing a major tax benefit of popular college savings accounts used by millions of American families of all income levels.
White House officials said the backlash against the president’s plan became “such a distraction” that it was best to drop the proposal, which would have removed the ability of families to withdraw money tax-free from the savings 529 plans.
With more than $1 trillion of outstanding student debt in this country, the 529 plan has become one of the best tools for families to save for college. About 12 million American families rely on the accounts, the Post reported.
Soon after Obama proposed the rollback in his State of the Union speech, Treasurer Fitch called the 529 rollback a penalty against “families who have prepared and saved for their children’s future.”
Added Fitch, “I am extremely disappointed by this proposal. Research shows children with a college savings account are seven times more likely to attend college, compared to children with no dedicated account.
“In Mississippi, we have one of the best 529 plans in the country with annual state tax deductions up to $10,000 for single filers and up to $20,000 for joint filers. Taking away 529 tax plans’ advantages may discourage people from saving for college – exactly the opposite of what we should do.”