Thursday, February 08, 2007

Expropriation and 529 Accounts

A while back I wrote a post about "Expropriation" where the government takes your assets and gives you back a fraction of its value (or anything at all). The point of this post was that deferring taxes under the assumption that your tax rate will be lower in the future may backfire if the government gets punitive to cover future obligations, while today's rates at least offer some certainty.

In an article from today's Wall Street Journal titled "New Math for 529 Plans in Budget Bill" they discusses a proposed change in how 529 plans are counted for financial aid. I am not an expert in 529 plans but, in general, you are able to put money aside for college for yourself or your children and it grows tax-deferred, and when you take it out and use it for assigned purposes (education) you don't pay taxes on the gains above your original investment. However, having money counts "against" you in the financial aid calculations made by colleges. Thus in a perverse logic, actually saving for college just means that you end up paying MORE for college while someone who didn't prepare at all gets a bigger financial aid grant.

Per the article:

"some Democratic congressional aides say it is likely to encounter resistance among lawmakers who believe aid gets distributed more fairly when 529 assets are counted"

So here we go. The Democrats are blatantly saying that many of their constituents aren't bothering to save for college, and by not allowing contributions to work against the "richer" middle class savers, there will be less money for THEIR people.

And so it begins...

1 comment:

Dan from Madison said...

I have been saving money in Bright Start plans (which is a 529) ever since my first kid was born. Of course a guy such as myself had the confidence that I will not receive one red cent from anybody (academic scholarships excluded) to help pay for my kids college. This mindset actually helps me. Knowing things like this and the fact that I will be receiving zero social security when I get old make my current day financial desisions easier.