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College savings plan benefits could expand

January 25, 2017
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Indiana Treasurer Kelly Mitchell marks 20 years of 529 plans in the state and shares how they helped her kids graduate from college debt-free. (IL Photo/Eric Learned)

Hoosier parents who’ve put aside money for their children’s education in 529 college savings plans have recognized the benefits of doing so for 20 years. Now, state and federal lawmakers are considering making the tax-deductible plans even more attractive.

Indiana Treasurer Kelly Mitchell and Higher Education Commissioner Teresa Lubbers marked the 20th anniversary of 529 plans in the state during an event at the Capitol Jan. 18. Down the hall, lawmakers were proposing new incentives for savers and for employers to contribute to the plans.

“I’m a big fan of 529 plans and college savings, and I just sat down and thought about different ways we can enable more access to a larger group of people,” said Sen. Eric Koch, R-Bedford, sponsor of Senate Bill 412. He said its key provisions would:

• provide employers a deduction of up to $1,000 for contributions to their employees’ 529 plans;

• provide a state match of up to $250 for 529 plan contributions by lower-income Hoosiers;

• allow taxpayers to designate all or part of an income tax return as a 529 contribution, and;

• prohibit counting 529 funds as part of means-testing eligibility for other benefits.

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Koch’s bill was set for its initial hearing before the Senate Tax and Fiscal Policy Committee on Jan. 24. At IL deadline, a fiscal note regarding the cost to the state of providing the additional proposed benefits was not available.

“The philosophy behind this bill is enabling more access to a larger universe of Hoosiers to the benefits of college savings,” he said.

Already, though, hundreds of thousands of people have benefitted from the plans in the two decades they have been made available. According to data provided by Mitchell, Indiana 529 plans contain contributions of $3.6 billion in about 317,000 total accounts. The average account balance is $11,340, and $294 million was used for education expenses from 529 plans in 2016.

“These numbers will continue to rise as more and more future learners and their loved ones learn of the benefits of the CollegeChoice 529,” Mitchell said.

Since 2007, Hoosier taxpayers have been able to deduct 20 percent of the value of their annual 529 contributions up to a total of $1,000, said Troy Montigney, executive director of the Indiana Education Savings Authority.

“That’s one of the more generous 529-related tax incentives in the country, and it’s been a tremendous catalyst for encouraging participation in our plans,” Montigney said.

“We’re broadly supportive of any enhancement to CollegeChoice 529 plans,” he said. “To me, the breadth of (Koch’s) bill as it stands is fairly impressive. We’re supportive of any enhancements the General Assembly decides it would like to extend.”

Few states provide either a direct contribution to college saving plans or tax credits for employer contributions, Montigney said. “We believe wholeheartedly employers should support education savings of their employees any way they can. If that were to pass, we would aggressively promote that around the state.”

In Congress, lawmakers on Jan. 13 introduced House Bill 529, which would also offer employers incentives to start or contribute to plans for their workers and also would increase the opportunities for families to make contributions to these plans. The bill offered by Rep. Lynn Jenkins, R-Kansas, was referred to the House Ways and Means Committee.

“529 plans started with the simple goal of encouraging families to save for college education,” Mitchell said. But as aid sources covered less of the rising costs of college, “They’ve become a critical component in helping families achieve their educational dream.”

Lubbers Lubbers

Lubbers was in the General Assembly when the legislation authorizing 529 plans passed unanimously in 1996. “Everyone realized at that point why it was so important to begin to send a message to students and families that not only did you need to be academically ready to go to college, but you needed to be financially prepared as well. … The issue of value has become more important than ever,” she said.

“We now know that in the United States, where we’ve reached $1.3 trillion in student debt, the average debt load for Hoosier students is around $30,000, and so that is a very chilling impact at a time when our strategic plan and everything that we’re doing talks about more students accessing college. We need to make sure they can afford to do so,” Lubbers said.

Lubbers noted Indiana ranks first in the Midwest and fifth in the nation in providing need-based financial aid for college students through such programs as 21st Century Scholars and Frank O’Bannon Grants. “But as strong and as good as these programs are, they don’t cover the full cost of college. … The savings that families can have by saving just a little bit of money and starting to do that early in life will make a difference” with books, housing and other expenses the assistance programs may not cover.

She also said starting 529 savings early gets students in a mindset that they are college material and gets them more engaged in their education from an earlier age.

Mitchell, who said she was among the first in her family to graduate from college, shared a personal experience. “I opened CollegeChoice 529s myself for my children, and it was one of the reasons my daughter graduated debt-free from IU and my son’s on track to do the same from Wabash College this May. It really makes a tremendous difference.”

Likewise, as part of the 20-year celebration of CollegeChoice plans, the program this year will solicit personal stories through social media from people who have benefitted from 529s. Those selected will receive either a donation to a 529 plan or will be featured in promotional materials, Montigney said.

Mitchell said the program also plans to announce the latest in a string of investment fee reductions later this year.•

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