Posted on 01/20/2015 1:01:14 PM PST by Brad from Tennessee
Tonight, in his State of the Union address, President Obama will propose a series of tax increases on the American people. One of these tax increases is indisputably an income tax hike on middle class families with children.
Under Obama’s plan, earnings in “Section 529” (named for its location in the Internal Revenue Code) college savings plans will face full income taxation upon withdrawal.
Under current law, earnings growth in 529 plans is tax-free if account distributions are used to pay for college tuition and fees. The Obama plan will tax earnings in these accounts even if they are used to pay for college tuition and fees.
These accounts are commonly used by middle class families. There are about 12 million 529 accounts open today, and they have an average account balance of approximately $21,000. Most 529 plans permit monthly contributions as low as $25 per month. . .
(Excerpt) Read more at atr.org ...
...how I see it too.
Oh, come on, if college is free, why would you need tax breaks on this savings account? You’re obviously hoarding money that should have already gone to the government and could have been used to pay for health care and college, so it’s about time you pay your fair share... /end liberal thinking.
/start conservative thinking - I just got screwed by Obama yet again.
ROTH IRA’s can’t be far behind...
More and more arguments for the Fair Tax model.
Get out of the income tax business. Consumption taxation makes more sense, and costs less to administer.
BTW, can someone explain to me the rational behind the penalty that if one has a traditional IRA and fails to begin taking enough money out of it at age 70.5, one is then taxed at 50%(!!!). I can see some of the rational to make the investor take money out, but 50% for the many people who have small accounts is truly draconian...
(I have a relative with dementia in this position — I can’t figure out why the withdrawals were not done — B4 the dementia began, I think — but if the 50% penalty is enforced, that just puts him into subsidized care that much sooner.)
It might be some relief to know this 529 proposal isn’t going anywhere.
It is instructive to know where the Left would LIKE things to go, though.
I believe the penalty is 50% of the amount you needed to take out that particular year, i.e. not the whole balance.
The rationale behind it is a combination of denying passing of assets to descendants and “get the money in the economy”. The former is a big libtardian progressive goal, your “assets” should go back into the “pool” when you die and inherited wealth is “evil”.
I suppose that better worded would not be “why a penalty?”, but why such a drastic penalty?
The whole economy rational is nuts - money in the account IS in the economy, normally, being invested by the retirement account management, etc.
In the case I speak of, said relative is in their 80’s and somehow never a cent was taken out, that I can find. But, the records at the investment management company (TIAA-CREF) only go back 7 years. I cannot even figure out how this happened, and TIAA-CREF doesn’t either. The relative was fairly sharp on finances back in their 70’s, so it all makes even less sense... Barring some sort of negotiation with IRS, half of the entire acct. will go to IRS, and (barring death soon) there will be one more person with care paid by the gov’t., instead of from their assets.
Agreed. Just the compliance aspect alone of income tax is a nightmare!
Remember that the 401k/IRA money was not taxed when it was put in. So to me it’s reasonable to require that it be taxed at some point.
We can argue over what the rates of “fair” taxation should be, but making it subject to some tax is only proper in my view.
I’ve no problem with the $$ being taxed as ordinary income when it is distributed. My problem is with the 50% penalty, regardless of one’s income, if one doesn’t take the $$ out when the IRS says to, as opposed to letting it continue to grow until one needs it. At no time would my relative have been even remotely close to a 50% federal income tax (+ SS tax) rate.
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