[Congressional Record Volume 161, Number 17 (Monday, February 2, 2015)]
[Senate]
[Pages S698-S699]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. Grassley (for himself, Mr. Casey, Mr. Burr, Mr. Warner, 
        Mr. Roberts, and Mr. Cardin):
  S. 335. A bill to amend the Internal Revenue Code of 1986 to improve 
529 plans; to the Committee on Finance.
  Mr. GRASSLEY. Mr. President, I am glad to be joined by Senator Casey 
of Pennsylvania in introducing bipartisan legislation to improve upon 
the already immensely successful college 529 savings programs. Those 
are savings plans to go to college. The 529 plans have helped millions 
earn a college degree without piling up a mountain of debt. These plans 
have long had strong bipartisan support, and I am glad the introduction 
of this bill today continues that tradition.
  Given the bipartisan nature of 529 plans, it came as a shock to me, 
and I am sure to most of my colleagues, when the President put forth a 
proposal that would undermine years of hard work toward making savings 
for college as accessible as it is today. College savings vehicles, we 
now know by the Tax Code section--that is where section 529 comes 
from--were first started by States in the late 1980s. However, it was 
only after a bipartisan effort led by then-Senator Bob Graham of 
Florida and Senator McConnell,

[[Page S699]]

now our majority leader, in 1996 that these savings plans were finally 
enshrined in section 529 of the Tax Code.
  By recognizing college savings plans in the Tax Code, States and 
participants could now be certain about the favorable tax treatment 
they would receive and thus the plans flourished. During this time, 
individuals' parents and grandparents were able to contribute to 
savings plans with certainty that the college savings for themselves 
and their loved ones would accumulate tax free. However, while 529 
plans could accumulate interest tax free, tax was still owed once money 
was distributed to pay for college.
  So in 2001, as chairman of the Finance Committee, I worked with 
Senator Baucus of Montana and others to advance a proposal to further 
enhance college savings by excluding distributions from 529 plans from 
income tax so long as the money was used to pay for college education 
costs. We were then successful in making this provision permanent in 
the tax law as part of the Pension Protection Act of 2006.
  This change helped 529 plans take off to even new heights. From 2001 
to 2002 assets in these plans doubled from $13 billion to $26 billion 
and totalled nearly $245 billion by July last year. The total number of 
accounts also nearly doubled. The number of accounts increased from 2.4 
million in 2001 to 4.4 million in 2002 and increased to nearly 12 
million by July of last year.
  The misguided proposal put forth in the President's State of the 
Union Address has a potential to reverse these gains by once again 
subjecting distributions to tax. The policy rationale given by the 
President was that too much of the benefit for 529 plans went to more 
affluent households and individuals. I believe a big reason the 
President's proposal was met with bipartisan disapproval is that we all 
know firsthand through communications with our constituents back home 
that the typical family with a 529 account is one with only modest 
means. We hear about how they have scrimped and pinched pennies so they 
could put money away for their child's college. They have a dream of 
sending their child to college and graduating without a crushing amount 
of debt holding them back as they start their new career post-college.
  Data from the College Savings Plans Network backs up this anecdotal 
evidence that we receive at the grassroots from our constituents. On a 
national basis the average account balance is under $21,000 and for 
Iowans the average balance is slightly lower than $17,878. This is 
obviously hard evidence that a typical family contributing to a 529 
account is far from being part of the wealthy elite the President wants 
us to believe they are.

  A private study commissioned by the College Savings Foundation 
further demonstrates that these accounts are largely held by middle-
class families. According to this study, about 10 percent of 529 
accounts are owned by households with income below $50,000, over 70 
percent are owned by households with income below $150,000, and almost 
95 percent of 529 accounts are in households with incomes below 
$250,000.
  The bill I introduced today with Democratic Senator Casey will help 
build on the success that has so far been achieved by increasing the 
attractiveness of 529 plans.
  This bill has three primary provisions:
  The first provision recognizes the reality that in today's world a 
computer is just as much a necessary educational tool--and the expense 
associated with it--as a required class textbook. As such, this bill 
allows 529 funds to purchase a computer on the same tax payroll basis 
as other required materials.
  The second provision eliminates an outdated and unnecessary 
aggregation rule that increases paperwork and costs for plan 
administrators.
  The final provision provides tax and penalty relief in instances 
where a student may have to withdraw from school for illness or other 
reasons. Under current law, any refunds from the college are subject to 
immediate taxation and a 10-percent tax penalty. This provision 
eliminates this tax and penalty if the refund is redeposited in a 529 
account. This permits a family to set the refund aside to pay for the 
student's education should that student be able to return to college or 
to use it for another family member.
  The reforms in 529 plans included in Senator Casey's and my bill are 
very modest but will help keep administrative costs low and provide a 
little extra incentive for parents to put money away for their child's 
education. The bill further demonstrates a renewed bipartisan 
commitment to 529 plans that will hopefully help erase concerns some 
may have in contributing to 529s given the President's misguided 
proposal.
  I hope Congress will act on this legislation and speak with a loud 
bipartisan voice on its commitment to college savings.
                                 ______