An Indefensible Tax Break?

Via The Quick and the Ed, Lynn O’Shaughnessy of MoneyWatch makes a convincing case for why parents in most states shouldn’t continue getting a tax break for contributing to 529 college savings plans.

When states first rolled out 529 savings plans, they did not offer tax-free withdrawals. Back then the 529 plan’s tax protection vanished when the money was pulled out. To encourage residents to contribute to these new-fangled college savings accounts, states trotted out the tax deduction.

But years ago, Congress waved its magic wand and transformed a respectable 529 college savings account into a prince of a deal. Thanks to the federal government, parents no longer had to pay federal taxes when they drained their accounts for college.

Let me ask you this: what other type of investment account lets you capture a tax break on the front end and avoid taxes from the IRS on the back end too?

That’s certainly a fair question.

Jesse Singal

Jesse Singal is a former opinion writer for The Boston Globe and former web editor of the Washington Monthly. He is currently a master's student at Princeton's Woodrow Wilson School of Public and International Policy. Follow him on Twitter at @jessesingal.