New tax proposal could give Americans more options to save for the future

Families and their students may get more control over money saved for the future under a new tax proposal from the U.S. House of Representatives.

Details released Thursday about the new “Tax Cuts and Jobs Act” include a provision that folds two college savings plans with federal tax incentives into one—chipping away at the voluminous federal tax code—and would allow families to use their savings in so-called 529 college savings plans for K-12 education and job training expenses, too.

Conservative institutions have long called on Washington to simplify the tax code and allow taxpayers to use more of their own money for educational purposes and beyond. The Goldwater Institute and Heritage Foundation have made proposals similar to those found in the new House tax plan.

The tax proposal expands the allowable uses for 529 plans to include expenses related to apprenticeship programs, including “books, supplies, and equipment.” With a 529 plan, families can save money that grows tax-free for their child’s college expenses if withdrawals are made exclusively for qualifying postsecondary expenses. Similar to a Goldwater Institute proposal from 2015, House lawmakers want to make these college savings plans valuable to students before, during, and after college.

The tax proposal would also sunset Coverdell Education Savings accounts, a federal K-12 and college savings plan that operates similar to Individual Retirement Accounts and move account holders into 529 college savings plans. Heritage proposed such changes as an effort to simplify the tax code and give taxpayers more control over more of their personal savings.

Coverdell accounts only allow families to save $2,000 per year, making it difficult for families to cover K-12 education expenses and the increasing costs of higher education. But 529 accounts allow families to save up to $14,000 per year ($10,000 under the new proposal) before certain tax penalties apply.

The job market changes faster than any single K-12 school or college can adapt. Families need to be able to make decisions about what is best for a child—or teenager, or college student, or new employee—without waiting for public education to adjust to the times. The House tax proposal will give more families more options to save for their future plans.