Frequently Searched

New Report Calls on Congress to Transform 529 College Savings Plans into Lifelong Learning Accounts

September 1, 2015

Phoenix—Earlier this year, President Barack Obama proposed ending tax benefits for so-called 529 savings accounts, which allow interest and investment income to accrue tax-free if the funds saved are spent on postsecondary education expenses. Weeks later, President Obama withdrew the proposal after facing strong opposition from leaders from both parties on Capitol Hill. Instead, both the House and Senate Finance Committee have passed reforms expanding what 529 accounts can be used to pay for. Now, a new report calls on Congress to go a step further and turn the accounts into “lifelong learning accounts” that families can spend on a wide array of education expenses, not just for college.

The strong rejection of President Obama’s 2015 plan to end tax benefits for 529 accounts—and
the broad bipartisan support for H.R. 529 and S. 335 to enhance 529 plans—reflects the popularity of this college savings vehicle. American families have opened a total of 10.9 million 529 colleges savings accounts and saved approximately $224 billion.

A new report from the Goldwater Institute says that policymakers should transform 529 accounts into Lifelong Learning Education Savings Accounts that can be used for much more than post-secondary expenses. Families should be allowed to use these savings plans to pay for preschool, K-12 expenses—including tutoring and professional training programs for secondary students—and post-college job training programs.

Currently 529 accounts can be used to pay for tuition, fees, books, and other expenses. The authors of the new report suggest that allowing families to use the accounts for preschool, K-12 expenses, and post-college job training would open the door to educational opportunities for all American families.

“529 accounts have put college in reach for millions of middle-class students. But they do nothing for the millions of American students who never enroll in college because they are unprepared academically. Wouldn’t it be great if families had the ability to use tax-free money to help pay for tutoring and SAT prep classes in junior high and high school to make sure their children can get into and succeed in college?” asks report co-author Dan Lips, a research fellow at the Goldwater Institute. “And what about people who graduate from college and enter a career field that undergoes a major change and then need to pay for a new job training program? Having money set aside that they can use to get back into the workforce would be a huge help.”

According to the U.S. Department of Labor, the fastest growing occupations in the U.S. are those that include skills not taught in traditional classrooms like computer programming (a projected employment increase of 18 percent between 2012-2022) and technical health care jobs (a projected 22 percent increase). “Lifelong Learning Education Savings Accounts would allow people who have already left college or a technical program to gain new skills and training with the same financial benefit given to students entering their freshman year,” said Lips.

The report suggests federal lawmakers look to the states for guidance on crafting the expanded 529 accounts. Five states have created K-12 education savings accounts that allow families to spend education funds on a wide range of services and expenses.

“Our approach to post-secondary learning is changing rapidly. With MOOCs, gap-years for service or on-the-job training, career changes that require new skills, the college experience that 529s were designed to fund in increasingly obsolete. Using 529s as the vehicle to encourage lifelong learning and let education funds be spent whenever they are needed would provide the flexibility families need to keep up with our changing world,” said Lips.

Read The Next Frontier In Education: Transforming 529 Savings Plans Into Lifelong Learning Education Savings Accounts here. The report is co-authored by Dan Lips and Jonathan Butcher, the Goldwater Institute’s education policy director.

###

About the Goldwater Institute

The Goldwater Institute drives results by working daily in courts, legislatures and communities to defend and strengthen the freedom guaranteed to all Americans in the constitutions of the United States and all 50 states. With the blessing of its namesake, the Goldwater Institute opened in 1988. Its early years focused on defending liberty in Barry Goldwater’s home state of Arizona. Today, the Goldwater Institute is a national leader for constitutionally limited government respected by the left and right for its adherence to principle and real world impact. No less a liberal icon than the New York Times calls the Goldwater Institute a “watchdog for conservative ideals” that plays an “outsize role” in American political life.

 

 

More on this issue

Donate Now

Help all Americans live freer, happier lives. Join the Goldwater Institute as we defend and strengthen freedom in all 50 states.

Donate Now

Since 1988, the Goldwater Institute has been in the liberty business — defending and promoting freedom, and achieving more than 400 victories in all 50 states. Donate today to help support our mission.

We Protect Your Rights

Our attorneys defend individual rights and protect those who cannot protect themselves.

Need Help? Submit a case.

Get Connected to Goldwater

Sign up for the latest news, event updates, and more.