At the State of the Union, President Obama proposed limiting the tax advantages of 529 college savings accounts. If you’re an affluent college parent, you probably already know this. If you’re not a parent and/or you are not affluent, you probably said “Huh? What is a 529 account?” Which rather exemplifies the problem.
I have 529s for both of my daughters. I recommend these to all my friends with children. These accounts allow you to accumulate tax-free investment gains to help finance your kids’ college. These also provide a good mechanism for relatives to chip in on birthdays and holidays. Given time to accumulate interest, a few hundred dollars a year from Grandma can easily accumulate to cover a whole semester at a state college. 529s provide a convenient nudge to help you save more, too, though the net impact of such tax-advantaged savings vehicles appears to be quite limited.
The president’s proposal produced an entirely-predictable uproar among affluent families and within the industry of financial and college-savings advisors. Leading Democrats such as Nancy Pelosi and Charles Schumer immediately ran from the proposal. Political heat was so intense that President Obama was forced to beat a hasty retreat and to abandon the proposal….