529 College Savings Plans Not Without Risk

While you do not get a federal income tax deduction for contributions to a 529 college savings plan, you do benefit from the tax-free growth of the account.  The key factor is that your account must grow to realize that benefit.  As you probably know, your 529 plan is subject to the same risks as most other investments.  Parents with younger children who will not be using the investment in the immediate future are less concerned with the market woes.  You can imagine the disappointment of a person needing to use their account now or in the near future and the value of their account has dropped 30 – 50%.

More Quotes

“In these hard economic times, we need to make sure tax and regulatory policy encourages growth in philanthropy,” said Steve Gunderson, chief executive of the Council on Foundations, quoted in a New York Times article, Limiting Deductions on Charity Draws Ire. 

 "This proposal could have an adverse effect on a market that is already in trouble, and this is not the time to reduce incentives for buying or refinancing a home," Mortgage Bankers Association chief executive officer David G. Kittle as quoted in a Philadelphia Inquirer article, Plan to Limit Mortgage Deduction Draws Fire.

 "It's a no-brainer for economists.  Why have taxpayers been [in effect] subsidizing home payments for the highest income people in the country?"  Dean Baker, co-director of the Center for Economic and Policy Research, a D.C. think tank, in a CNN article, Mortgage Deductions: Wealthy on the Losing End, stating that he was impressed with this part of the budget plan.  This article indicates that the move would generate $318 billion in a 10 year period.

These quotes are in response to President Obama’s tax proposal to limit deductions on things like charitable donations, mortgage interest and investment expenses at 28%.

Obama Tax Proposals a Mixed Bag

A recent Forbes.com article provides a breakdown of President Obama’s tax proposals.

One element may be devastating for charities.  The proposal would cap the value of deductions for things like charitable donations, mortgage interest and investment expenses at 28% for couples earning more than $250,000, or 30% less than they would otherwise receive.

On a more positive note, the proposal would stop the scheduled repeal of the estate tax next year and freeze current levels, i.e., a 45% maximum tax rate on a married couple’s estate valued at more than $7 million.