Bill Would Allow Transfer of College Savings to Retirement Funds
Credit: showqdf- 529 college plans are not federally taxed if used to pay for education or career training.
- Currently, those with a 529 account pay steep fees if the funds are used for anything else.
- The proposal comes as higher ed enrollment rates are declining across the country.
A bipartisan proposal seeks to give parents whose children decide not to attend college an easy out for the money they saved for higher education.
The bipartisan College Savings Recovery Act would allow parents or guardians to transfer money from a college savings account to a retirement account without penalties. Currently, those with a 529 college plan must pay steep penalty fees if they wish to use those funds for anything other than education or career training.
Sen. Richard Burr, a Republican representing North Carolina, and Sen. Bob Casey, a Democrat representing Pennsylvania, proposed the College Savings Recovery Act on Tuesday.
The senators stressed in a joint statement that this plan would offer greater flexibility for those who chose to plan ahead.
“We should encourage parents to save for their family’s future, while recognizing that they can’t always predict what the future holds. Their child might not decide to pursue a higher education,” Burr said in a statement. “I’m proud to work with Senator Casey on this commonsense bill, which will give families greater flexibility on their savings for years to come.”
Those with 529 accounts — a type of college savings plan that is not federally taxed when used to pay for education — would be able to transfer unused funds to a Roth IRA retirement account. Roth IRAs are another tax-advantaged type of savings account.
“Currently, if someone wants to use 529 account funds for anything other than education expenses, they have to pay taxes on those funds as well as a 10% penalty tax.”
Currently, if someone wants to use 529 account funds for anything other than education expenses, they have to pay taxes on those funds as well as a 10% penalty tax.
The bill would nullify that fee if the funds are transferred to a Roth IRA. It would also help those whose children did go to college but dropped out with funds still left in a 529 account.
A 529 account is the most popular savings plan used by parents, according to a BestColleges analysis. Fifty-three percent of parents said they used this plan.
According to the College Savings Plan Network, there were just under 15.7 million open 529 accounts by the end of 2021. Total assets were over $480 billion, more than double the total assets as of 2013.
The College Savings Recovery Act was originally included in the Boost Savings for College Act in 2017. However, that bill failed to move through Congress despite attracting both Republican and Democratic co-sponsors.