Students would be able to withdraw money from their 529 college savings plans to buy computers, as well as have more flexibility if they need to take a leave from their studies, if a bill before Congress becomes law.
S.335 was unanimously passed by the U.S. Senate Committee on Finance last week and awaits action before the full Senate. A companion House of Representatives bill, H.R.529, was passed with a bipartisan vote by the House of Representatives in February.
State Treasurer Denise L. Nappier, whose office administers the Connecticut Higher Education Trust (CHET), Connecticut’s 529 college savings plan, praised the Senate’s recent action.
Among other things, the Senate bill would add computers to the list of eligible education expenses for which students can make tax-free withdrawals from their 529 plans.
“In today’s high-tech world, it’s hard to believe that computers and other electronic devices have not been considered as qualified higher education expenses,” Nappier said in a statement. “More classes are using e-books and cloud-based learning programs, and it is clear that electronics are essential tools in today’s college learning environment.”
Currently, qualified education expenses for which CHET funds can be used are: tuition, fees, books, supplies, certain room and board expenses, and “equipment required for the enrollment and attendance of the beneficiary at an eligible educational institution.” Additional enrollment and attendance costs for a beneficiary with special needs may also be eligible expenses.
In addition to adding computers to that list, the Senate bill would let families redeposit college refunds back into 529 plans within 60 days without a tax penalty, should a student need to take a leave from their studies due to serious illness or other sudden circumstances, Nappier said.
“As Connecticut families set aside money for college expenses, our Congressional leadership is taking an active role in improving 529 college savings plans so that they are flexible, convenient and easy to use,” Nappier said. “There’s no doubt that this is the right thing to do, as families save for years to put their children through college and should not be penalized for life events that are beyond their control.”
The bill was introduced in February by Senators Chuck Grassley, R-Iowa; Bob Casey, D-Penn.; Richard Burr, R-N.C.; Mark Warner, D-Va.; Pat Roberts, R-Kansas; and Ben Cardin, D-Md.
“We need to do all we can to make a college education more affordable,” Cardin said in a statement when the bill was introduced. “These small improvements will make a huge difference in how middle-income families can save for educational expenses. We’re clarifying the rules and adding flexibility where it would be most helpful.”
Nappier is urging the Senate to pass the bill — which also includes accounting updates proponents say will reduce costs for plan administrators — and President Barack Obama to sign it into law.
Increasingly popular 529 plans allow families to set aside after-tax money in investment accounts where it grows tax-free. Money can be withdrawn, tax-free, from the accounts for certain college expenses. The money that accrues in an account can be used at accredited colleges, universities, and vocational trade schools nationwide for eligible higher education expenses. Some colleges abroad also are eligible.
CHET was started in Connecticut in 1997 and, according to Nappier’s office, has more than $2.6 billion in assets and 110,000 accounts. About 29,000 students have used more than $939 million in CHET funds to pay for college costs, according to the treasurer’s office.
CHET is administered by Nappier’s office and managed by TIAA-CREF Tuition Financing Inc.