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President Obama Withdraws Proposal to Tax 529 Plan Benefits


The idea of families getting taxed on money they take out of their 529 college savings plans proved to be so unpopular that President Obama has decided to drop it.

On Tuesday, the administration announced that eliminating the ability to withdraw savings from accounts tax-free, as part of his tax package aimed at helping middle-class families, would not be part of the president's new budget. The backlash against the proposal proved to be a "distraction," according to a White House official quoted in multiple media reports. [CORRECTION (2:40 P.M.): The original version of this post was missing a key word to describe the administration's original plan and gave the wrong day of the announcement.]

Members of both political parties had called for the administration to take the proposal off the table.

Among the critics was House Speaker John Boehner, R-Ohio, who issued a statement following the decision saying he was pleased with the president's reversal. "This tax would have hurt middle-class families already struggling to get ahead," said Boehner.

Minority Leader Nancy Pelosi, D-Calif., and Chris Van Hollen, D- Md., had also voiced concern with changing the tax rules on the popular college savings plan, which had been in place since 2001.

Nearly 7 million families have 529 Plans. The average account value is about $20,000, according to the College Savings Foundation, a Washington-based nonprofit that lobbied against the proposed changes.

This tax would have hurt middle-class families already struggling to get ahead. - See more at: //www.speaker.gov/press-release/boehner-president-obama-should-now-support-bipartisan-bill-expand-not-tax-college#sthash.UN4EaEDn.dpuf
This tax would have hurt middle-class families already struggling to get ahead.  - See more at: //www.speaker.gov/press-release/boehner-president-obama-should-now-support-bipartisan-bill-expand-not-tax-college#sthash.UN4EaEDn.dpuf

Taxing withdrawals on 529 Plans was one of several tax reforms affecting higher education that the administration would like to see in the new federal budget to help generate revenue to pay for free community college and other education benefits.

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