WASHINGTON — President Barack Obama’s proposal to scale back the tax benefits of college savings accounts is running into opposition from Republicans in Congress who say they have no intention of raising taxes on families trying to save money for their children’s education.
Obama’s plan would reduce the tax benefits of future contributions to the popular 529 college savings plans. Current accounts would be grandfathered, so existing funds could still grow and be withdrawn, tax-free.
The administration says all the additional tax revenue would be used to help expand and make permanent a $2,500 tax credit that families can use for education expenses. Under current law, the tax credit is scheduled to expire at the end of 2017.
“The president’s plan would consolidate education savings incentives into one vehicle and redirect the savings into the better targeted” American Opportunity Tax Credit, the White House says in a description of the proposal.
Obama laid out the proposal as part of this week’s State of the Union address. It is part of a broader effort by the Obama administration to simplify a sometimes confusing array of tax breaks designed to make higher education more affordable.
Obama is also proposing a $60 billion plan to make the first two years of community or technical college free.
Congressional Republicans have embraced the effort to simplify the education tax breaks, but key GOP leaders adamantly oppose scaling back college savings plans.
