The House Ways and Means Committee wants 529 education savings distributions to go toward student loan debt, home schooling expenses and trade apprenticeships, the committee announced.
Chairman Kevin Brady released three bills named “Tax and Reform 2.0” to piggyback off the tax overhaul that occurred at the end of 2017. One of the bills, the Family Savings Act of 2018 (H.R. 6757), would let individuals or families use their distributions toward more educational expenses.
Under the new bill, 529 beneficiaries (and possibly their siblings) can use up to an aggregate of $10,000, tax-free, to repay their federal and private student loans, according to the bill. The distributions would be able to pay the principal and interest on the loans.
The bill also gives families the ability to use their savings accounts for home schooling costs such as curriculum, online educational materials and tutoring costs, among other things.
In addition, the Family Savings Act wants to include expenses associated with apprenticeships as defined by the U.S. Department of Labor.
The Family Savings Act reviews modifications to retirement savings accounts as well.
Tax Reform 2.0 contains two other bills: the Protecting Family and Small Business Tax Cuts Act of 2018 (H.R. 6760), which touches on income tax, and the American Innovation Act of 2018 (H.R. 6756), which aims to provide more deductions for start-ups.
Non-profit organizations in support of education savings like the College Savings Foundation praised the bill proposal for its ability to “reduce student loan debt without income tax and penalty consequences.”
SavingForCollege.com, an independent website for 529 information, pointed out in one of its blog posts that the new legislation doesn’t list federal parent PLUS loans as a qualified educational expense. However, publisher and vice president of research Mark Kantrowitz suggests that there is a “potential workaround.”
“The account owner can change the beneficiary of a 529 plan account to the current beneficiary’s parent and then take a qualified distribution to repay up to $10,000 in Federal Parent PLUS loans,” he wrote in the post.