Obama Drops Plan to Tax 529 College Savings Interest

President Obama is dropping his proposal to tax earnings on college savings accounts at the urging of Congressional Republicans and House Democratic leader Nancy Pelosi and Rep. Chris Van Hollen of Maryland. A plan to tax popular 529 plans would raise taxes on middle-class savers who save for their children’s and grandchildren’s college educations.

What was President Obama thinking?

He proposes two years of free community college tuition for Americans who keep their grades up when he knows the Republicans just elected to Congress will never allow his proposal to pass into law (State of the Union speech). Then with the other hand he was going to tax earnings on 529s, which help the middle class save for college tuition.

The Iowa 529, which is awesome, requires a minimum of $25 a month in savings. That’s not very much money. The sum is tax-deductible and grows with interest. I assume that Obama would have taxed the interest (“earnings”), assuming he could have got such an outrageous proposal through Congress.

It’s just one more example of Obama saying one thing and doing the opposite. I’m glad he was talked out of taxing 529 college savings plans. I, for one, have used Iowa’s 529 savings plans for my kids’ college tuition and other college expenses. It’s a great idea and helps with one’s tax bill as well.