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Obama's Tax Increase on the Middle Class. YES, Increase

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Jhhnn

No Lifer
Nov 11, 1999
61,140
13,081
136
So let's do some numbers.

Obama proposes that withdrawals from 529 plans be taxed at LTCG rates. Nothing else changes. Money is not taxed before it goes in & earns tax free as before.

Let's use 2014 rates.

Couples filing jointly with taxable income less that $73,800 AGI pay 0%. That's approx. 75% of filers. Couples with incomes up to $457K AGI pay 15% on the portion above $73,800.

Let's say it goes in effect for 2015 & you spend $10K out of the account you've had since program inception in 1996. $4K is deductible. Your taxes go up a maximum of $900, 15% of $6K.

If you really want to save money, your kids will pick up their first 2 years of core classes at a free community college. Credits are fully transferrable across state colleges. You save several $K/yr. for 2 yrs. up front.

Total out of pocket for a 4 yr. degree can easily be less for most families. Actual cost increases for affluent families are minimal, grading upward for more expensive schools. It's still the best tax deal available for anybody who isn't a hedge fund manager.

Reduce taxable income with tax free contributions. Earn tax free. Take a $4K tax deduction when you pull money out. (or a $2500 tax credit, depending) Pay 15% or less in LTCG taxes when you do. Take advantage of free Community College. Take advantage of whatever other tax breaks the new package offers which may be substantial.

The bottom line for most families may well be better even if the calculations getting there are different.

Perspective-

http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
 

Genx87

Lifer
Apr 8, 2002
41,083
490
126
So let's do some numbers.

Obama proposes that withdrawals from 529 plans be taxed at LTCG rates. Nothing else changes. Money is not taxed before it goes in & earns tax free as before.

Let's use 2014 rates.

Couples filing jointly with taxable income less that $73,800 AGI pay 0%. That's approx. 75% of filers. Couples with incomes up to $457K AGI pay 15% on the portion above $73,800.

Let's say it goes in effect for 2015 & you spend $10K out of the account you've had since program inception in 1996. $4K is deductible. Your taxes go up a maximum of $900, 15% of $6K.

If you really want to save money, your kids will pick up their first 2 years of core classes at a free community college. Credits are fully transferrable across state colleges. You save several $K/yr. for 2 yrs. up front.

Total out of pocket for a 4 yr. degree can easily be less for most families. Actual cost increases for affluent families are minimal, grading upward for more expensive schools. It's still the best tax deal available for anybody who isn't a hedge fund manager.

Reduce taxable income with tax free contributions. Earn tax free. Take a $4K tax deduction when you pull money out. (or a $2500 tax credit, depending) Pay 15% or less in LTCG taxes when you do. Take advantage of free Community College. Take advantage of whatever other tax breaks the new package offers which may be substantial.

The bottom line for most families may well be better even if the calculations getting there are different.

Perspective-

http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
That is all fine and dandy except people were sold on it being tax free. Now Obama wants to tax it. Regardless of how many get dinged. It is immoral for a program to be sold for decades on a premise. Then to yank away its premise to pay for something else.
 

Jhhnn

No Lifer
Nov 11, 1999
61,140
13,081
136
That is all fine and dandy except people were sold on it being tax free. Now Obama wants to tax it. Regardless of how many get dinged. It is immoral for a program to be sold for decades on a premise. Then to yank away its premise to pay for something else.
Look past the end of your nose often, or not at all?
 

werepossum

Elite Member
Jul 10, 2006
29,876
460
126
This is why I can occasionally stomach reading slate.
Three points. First, if 47% are above $150,000 then 53% are below $150,000. Second, these are exactly the people we want saving for college, not expecting the government to fund it. Third, $150K is pretty good money everywhere, but in very large cities like NYC it's a far cry from wealthy.

That is all retirement money. Are you suggesting that I incur penalties and risk my retirement to pay for my kids college? I have been saving for both and was on track to nicely cover each, this plan would destroy that plan. Why would you support a tax on 529s? It is clearly a plan that benefits the middle class.

The absolutely terrifying thing about it is that changing the rules midstream may give the government the idea to do the same thing to Roth IRAs. Attacking the most vital resources of the middle class when they need it most, not cool. Makes me want to pull all of my money out and just bury gold in the back yard.

Quit targetting savers. Please.
I agree completely. Government that punishes people doing all the right things is not smart government.

Note to self: Buy metal detector and shovel.
 

Genx87

Lifer
Apr 8, 2002
41,083
490
126
Look past the end of your nose often, or not at all?
Are you going to address the issue of telling people for decades one thing then trying to do another?

You can frame it as the rich can afford it, it is small amount of people ect. But that doesnt get past the utterly slimy behavior of trying to change a program people were sold on decades ago.
 

MixMasterTang

Diamond Member
Jul 23, 2001
3,137
141
106
Are you going to address the issue of telling people for decades one thing then trying to do another?

You can frame it as the rich can afford it, it is small amount of people ect. But that doesnt get past the utterly slimy behavior of trying to change a program people were sold on decades ago.
Look at post #8, this already addresses it. Would you feel better if they just stopped takingt contributions into a 529 and started a 529a with the same previous rules except that it's now taxable?

3) The possibly proposed text in your link said that it applies to new contributions only (none of the money you put in so far or the gains would be taxed, ever, if your child uses it for education).
 
Nov 30, 2006
15,468
389
121
Look at post #8, this already addresses it. Would you feel better if they just stopped takingt contributions into a 529 and started a 529a with the same previous rules except that it's now taxable?

3) The possibly proposed text in your link said that it applies to new contributions only (none of the money you put in so far or the gains would be taxed, ever, if your child uses it for education).
If the tax benefits of 529s are taken away why would anyone want to use them?
 

ivwshane

Lifer
May 15, 2000
28,212
8,054
136
I think I'll take the normal righty approach they take when a program that doesn't affect them goes away or into effect that does effect other people...

Sucks to be you guys! Doesn't do anything for me, so who cares!



Like I said, Karma's a bitch;)
 

hal2kilo

Lifer
Feb 24, 2009
15,281
3,498
136
I know this will never happen, but wouldn't the solution be to base the ability to take advantage of the tax break based on whether you were in a "middle class" tax bracket? I realize that was not offered.
 
Nov 30, 2006
15,468
389
121
I know this will never happen, but wouldn't the solution be to base the ability to take advantage of the tax break based on whether you were in a "middle class" tax bracket? I realize that was not offered.
If one was sincerely looking out for the middle class...I would think this option would have been offered.
 
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sunzt

Diamond Member
Nov 27, 2003
3,079
3
76
Damn...

I just started my first 529 this year because of the federal and state tax benefits. One of the biggest benefits is that you can roll over the benefits to the next kid, which helps mitigate a bad stretch of stock performance.

Obama should NOT change the tax stance, otherwise there's no point to it.
 

bshole

Diamond Member
Mar 12, 2013
8,302
1,203
126
So let's do some numbers.

Obama proposes that withdrawals from 529 plans be taxed at LTCG rates. Nothing else changes. Money is not taxed before it goes in & earns tax free as before.

Let's use 2014 rates.

Couples filing jointly with taxable income less that $73,800 AGI pay 0%. That's approx. 75% of filers. Couples with incomes up to $457K AGI pay 15% on the portion above $73,800.

Let's say it goes in effect for 2015 & you spend $10K out of the account you've had since program inception in 1996. $4K is deductible. Your taxes go up a maximum of $900, 15% of $6K.
I am saving enough to pay more like $30K per year for each kids college education. If both kids are attending simultaneously, I am looking at $60K which will now create $9K of fresh taxes. A total of $36K of the money I saved for their college wasted in taxes over the course of their college careers. It is simply put..... HORSESHIT!!! Go fuck over some rich people and leave the middle class alone.

Now wait, are they just taxing the PROFITS of the 529 or the actual WITHDRAWALS (which include profit and original taxed deposits).... if the latter, it is then simple theft and not even a tax on income.
 
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WackyDan

Diamond Member
Jan 26, 2004
4,794
68
91
So let's do some numbers.

Obama proposes that withdrawals from 529 plans be taxed at LTCG rates. Nothing else changes. Money is not taxed before it goes in & earns tax free as before.

Let's use 2014 rates.

Couples filing jointly with taxable income less that $73,800 AGI pay 0%. That's approx. 75% of filers. Couples with incomes up to $457K AGI pay 15% on the portion above $73,800.

Let's say it goes in effect for 2015 & you spend $10K out of the account you've had since program inception in 1996. $4K is deductible. Your taxes go up a maximum of $900, 15% of $6K.

If you really want to save money, your kids will pick up their first 2 years of core classes at a free community college. Credits are fully transferrable across state colleges. You save several $K/yr. for 2 yrs. up front.

Total out of pocket for a 4 yr. degree can easily be less for most families. Actual cost increases for affluent families are minimal, grading upward for more expensive schools. It's still the best tax deal available for anybody who isn't a hedge fund manager.

Reduce taxable income with tax free contributions. Earn tax free. Take a $4K tax deduction when you pull money out. (or a $2500 tax credit, depending) Pay 15% or less in LTCG taxes when you do. Take advantage of free Community College. Take advantage of whatever other tax breaks the new package offers which may be substantial.

The bottom line for most families may well be better even if the calculations getting there are different.

Perspective-

http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
First... The parent wouldn't be the one withdrawing ideally but the student. AS you or another pointed out this puts them in a potentially lower bracket than their parents.

So your example above isn't really accurate.

Here is a solution. Yearly withdrawals exceeding $30k get taxed at the final year end income rate of the student withdrawing the funds. This allows most students their choice of school, private or public, 4 year school or something in between all that. I'm basing that on today's tuition rates of course... Part of the value of the 529 and growth potential coupled with tax free status is that we have no fucking clue what college tuition will look like in 14 years when my daughter is 18.

Why $30k? I threw that out there without much thought really. I know that there are some quality schools that are going to be close to that or well exceed that per year. You advocate community college to start. So do I. The quality of instruction in most community colleges has been studied and proven to be better than attended a four year school for the first two.

If I could plan all things out for my daughter I would hope she would choose to live at home, attend community college and then transfer up to one of our in state schools. I have no idea what she will want to do when she is 18, 19, 20, etc and what those goals mean for her educational needs. Maybe she'll just go to a trade school, maybe she'll enlist in the military. Beats me. I'll support her rational decisions fully. I won't support her getting an arts degree and going into debt for it. :) If there is money left in her 529 when all is said and done (doubtful) then she or I can cash it out and pay the tax penalty for doing so.

I know you probably don't agree with my example of $30k, but it leaves room for choice. Some rich kid has a fully funded year over year 529 with $200k plus in it and wants to go to med school, etc at a prestigious school, then yeah, lets tax his/her withdrawals over a certain amount if that makes everyone happy. The problem is we'll all have different opinions at where that tax kicks in. I believe in choice even if my own approach to school would be as conservative as yours. I think you might want everyone to make the conservative choice regardless of different options present.

So the 529's "cost" the gov't $2 billion a year? No they don't. I hate that mentality. The proper context would be the gov't has an "opportunity" to collect tax revenue. The change in taxation of 529's in 2001 could be called a cost... sure. When they made the tax free status permanent, all aspects of 529's costing the gov't anything became moot. Now it is just an opportunity to tax something that is beneficial to the middle class and to the country overall. We should be encouraging all programs or incentives that allow any citizen to save for school or make the up front costs seem cheaper. Anything that prevents a child from going into obscene amounts of debt for an education should be encouraged.

Do you think it is unfair that some parent's have the option to sacrifice and save in a 529 for their child's future education?
 

WackyDan

Diamond Member
Jan 26, 2004
4,794
68
91
I am saving enough to pay more like $30K per year for each kids college education. If both kids are attending simultaneously, I am looking at $60K which will now create $9K of fresh taxes. A total of $36K of the money I saved for their college wasted in taxes over the course of the college career. It is simply put..... HORSESHIT!!! Go fuck over some rich people and leave the middle class alone.
Awe come on!!! You know that means you are upper middle class or just plain rich with that ability to save! Never mind that you might have been saving for each kid for 18 years straight.

The progressives think that isn't fair. They forget that by being smart and throwing money into a 529 when you can, you just fucked your kid out of some of the financial aid and scholarships that your child would have to be poor (as well as you) to qualify for. That is the flip side to the argument isn't it?
 
Nov 30, 2006
15,468
389
121
I am saving enough to pay more like $30K per year for each kids college education. If both kids are attending simultaneously, I am looking at $60K which will now create $9K of fresh taxes. A total of $36K of the money I saved for their college wasted in taxes over the course of their college careers. It is simply put..... HORSESHIT!!! Go fuck over some rich people and leave the middle class alone.

Now wait, are they just taxing the PROFITS of the 529 or the actual WITHDRAWALS (which include profit and original taxed deposits).... if the latter, it is then simple theft and not even a tax on income.
Many progressives consider you to be rich and need to pay your "fair share". Get with the program you greedy "I got mine" scumbag.
 
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fskimospy

Elite Member
Mar 10, 2006
70,180
18,981
136
I am saving enough to pay more like $30K per year for each kids college education. If both kids are attending simultaneously, I am looking at $60K which will now create $9K of fresh taxes. A total of $36K of the money I saved for their college wasted in taxes over the course of their college careers. It is simply put..... HORSESHIT!!! Go fuck over some rich people and leave the middle class alone.

Now wait, are they just taxing the PROFITS of the 529 or the actual WITHDRAWALS (which include profit and original taxed deposits).... if the latter, it is then simple theft and not even a tax on income.
Know what's funny? It looks like all of you guys... all of you... have been flipping out for basically nothing.

First and foremost, according to what I'm reading this would only apply to new contributions. Therefore, everyone worried about them changing the rules of the game on you were wrong.

Second, it is taxed as the beneficiary's income. Considering how low many incomes for college are and the deductions available to such students, they probably aren't paying a ton of it in taxes.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/20/heres-what-you-need-to-know-about-obamas-new-plan-to-help-families-afford-college/

Finally, if you can afford to put away $120,000 per child simply for college, I'm quite comfortable with you not getting special tax breaks.

Now don't you all feel a little silly for all that uninformed rage?
 
Nov 30, 2006
15,468
389
121
Know what's funny? It looks like all of you guys... all of you... have been flipping out for basically nothing.

First and foremost, according to what I'm reading this would only apply to new contributions. Therefore, everyone worried about them changing the rules of the game on you were wrong.

Second, it is taxed as the beneficiary's income. Considering how low many incomes for college are and the deductions available to such students, they probably aren't paying a ton of it in taxes.

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/20/heres-what-you-need-to-know-about-obamas-new-plan-to-help-families-afford-college/

Finally, if you can afford to put away $120,000 per child simply for college, I'm quite comfortable with you not getting special tax breaks.

Now don't you all feel a little silly for all that uninformed rage?
Taxes may be somewhat lower but student savings really hurt them on the FAFSA EFC calculation. It's typically much better if the 529 money is under the parents name.

http://www.usnews.com/education/best-colleges/paying-for-college/articles/2013/05/13/how-college-savings-can-affect-financial-aid
 
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DCal430

Diamond Member
Feb 12, 2011
6,021
9
81
So let's do some numbers.

Obama proposes that withdrawals from 529 plans be taxed at LTCG rates. Nothing else changes. Money is not taxed before it goes in & earns tax free as before.

Let's use 2014 rates.

Couples filing jointly with taxable income less that $73,800 AGI pay 0%. That's approx. 75% of filers. Couples with incomes up to $457K AGI pay 15% on the portion above $73,800.

Let's say it goes in effect for 2015 & you spend $10K out of the account you've had since program inception in 1996. $4K is deductible. Your taxes go up a maximum of $900, 15% of $6K.

If you really want to save money, your kids will pick up their first 2 years of core classes at a free community college. Credits are fully transferrable across state colleges. You save several $K/yr. for 2 yrs. up front.

Total out of pocket for a 4 yr. degree can easily be less for most families. Actual cost increases for affluent families are minimal, grading upward for more expensive schools. It's still the best tax deal available for anybody who isn't a hedge fund manager.

Reduce taxable income with tax free contributions. Earn tax free. Take a $4K tax deduction when you pull money out. (or a $2500 tax credit, depending) Pay 15% or less in LTCG taxes when you do. Take advantage of free Community College. Take advantage of whatever other tax breaks the new package offers which may be substantial.

The bottom line for most families may well be better even if the calculations getting there are different.

Perspective-

http://www.businessweek.com/articles/2015-01-21/obama-s-plan-to-tax-college-savings-accounts-is-less-scary-than-it-sounds
I don't think you know what 529 plans are. It is after tax contributions, you do pay ordinary income tax on all contributions. Lol get your facts straight.
 

Matt1970

Lifer
Mar 19, 2007
12,321
2
0
I am saving enough to pay more like $30K per year for each kids college education. If both kids are attending simultaneously, I am looking at $60K which will now create $9K of fresh taxes. A total of $36K of the money I saved for their college wasted in taxes over the course of their college careers. It is simply put..... HORSESHIT!!! Go fuck over some rich people and leave the middle class alone.

Now wait, are they just taxing the PROFITS of the 529 or the actual WITHDRAWALS (which include profit and original taxed deposits).... if the latter, it is then simple theft and not even a tax on income.
There it is again. Someone who can afford to pay out of pocket $60K/year for college and has over $1.2 million in savings thinks he is middle class.
 

Jhhnn

No Lifer
Nov 11, 1999
61,140
13,081
136
If the tax benefits of 529s are taken away why would anyone want to use them?
Because they're still a tax advantaged way to invest above and beyond IRA's, 401K's & so forth. I rather suspect that those who use 'em, for the most part, also max out their other methods as well.
 

Jhhnn

No Lifer
Nov 11, 1999
61,140
13,081
136
I don't think you know what 529 plans are. It is after tax contributions, you do pay ordinary income tax on all contributions. Lol get your facts straight.
You are correct. Thank you for that. Depending on where you live, your state may allow a portion of contributions to be tax exempt.
 

berzerker60

Golden Member
Jul 18, 2012
1,233
1
0
Note that if community colleges were free like Obama is also proposing, that would already save anyone willing to go to one for two years before transferring to a state school something like $24k/yr x 2 = $48k. That's a conservative estimate, could easily be $60k+. 529 plans would be far less important (though still useful).
 

nickqt

Diamond Member
Jan 15, 2015
6,056
4,127
136
Note that if community colleges were free like Obama is also proposing, that would already save anyone willing to go to one for two years before transferring to a state school something like $24k/yr x 2 = $48k. That's a conservative estimate, could easily be $60k+. 529 plans would be far less important (though still useful).
Exactly this.

A Community College is useful for taking the 2 years of required core classes before transferring to a 4-year BA/BS granting school.

Also: let's not tax income growth in 529s.
 

Fern

Elite Member
Super Moderator
Sep 30, 2003
26,916
172
106
I know this will never happen, but wouldn't the solution be to base the ability to take advantage of the tax break based on whether you were in a "middle class" tax bracket? I realize that was not offered.
That's too intelligent for the POTUS and the Congress to figure out. Of course, that's assuming Obama's desire to kill the 529 plans has anything to do with high income earners participating in those plans.

Fern
 

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