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Two New Federal Bills Seek to Expand Usage of 529 Plans

    October 19, 2023
    By Michael Santo, COSHRM Legislative Director and Managing Attorney at Bechtel & Santo

    With education costs seemingly increasing by the minute, many people have been investing in 529 plans, named after Section 529 of the Internal Revenue Code (See 26 U.S.C. §529). These plans are designed to encourage investors to save for future education costs. In short, 529 plans are state-sponsored education savings vehicles that are exempt from federal and state taxes if funds are used to pay for qualified education expenses. These include college, graduate or professional degrees; education programs from Title IV accredited institutions; registered apprenticeship programs; up to $10,000/year in elementary or high school tuition; and certain student loan repayments.

    As identified in a recent article in Morningstar, once money is invested in the account, it grows tax-free, and withdrawals from the plans are not taxed when the money is used for qualified educational expenses. As of August 2020, more than $360 billion was invested in 529 savings plans.

    Recently, Congress proposed two bills – one in the House, one in the Senate – in an effort to expand what investors can use 529 savings for. The Freedom to Invest in Tomorrow’s Workforce Act (S. 722 / H.R. 1477) is attempting to expand eligible uses of tax-favorable 529 savings plans to cover costs associated with workforce training and credentialing programs, such as professional certifications. This bill would provide tax-advantaged resources for workers who pursue career growth, mid-career changes or alternative career pathways.  

    The Freedom to Invest in Tomorrow’s Workforce Act would also provide the opportunity for investors to help cover:

    • Certificate program tuition, including prep-courses;
    • Testing fees, including practice exams;
    • Required books and equipment;
    • Continuing education and certification renewal; and
    • Other charges required to obtain and maintain a certification.

    Seeing the benefits in the passage of this Act – both to individuals/employees and to Colorado SHRM (COSHRM) as an organization that provides continuing education, the COSHRM Board of Directors recently agreed to sign a letter of support for this proposed legislation. Those interested in doing the same, can follow this link for a letter of support template, or follow this link to learn more about how to get involved in supporting this initiative in Colorado.

    Questions? Email info@coshrm.org