Before Congress adjourned for Memorial Day weekend, Sen. Ted Cruz objected to a new retirement saving bill passed by the House because it left out one important reform.
The Texas Republican is standing up for expanded access to personal savings options for family education choice.
In 2017, college savings plans, or “529s,” were modified to allow parents to use money in those accounts for K-12 expenses.
Cruz’s Student Empowerment Act would build on those good reforms by allowing the money saved to go toward home schooling, apprenticeships, student loan expenses, and education support for students with disabilities.
Named after their section of the Internal Revenue Code, 529 college and K-12 savings accounts allow family members to save and invest after-tax income for future expenses.
Unlike most other forms of savings that get taxed once when the income is first earned, and then again when the savings are spent, any earnings on investments in 529s are tax-free.
Expanding the uses of 529 accounts help parents and students pay for education options outside the traditional school system, giving Americans more choice in their education.
For parents who still want to save and accrue tax-free earnings until college, nothing changes. It’s just more choice for those who want it.
Two of the good reforms are that the bill would increase eligible retirement savings and expand new families’ access to their 401k to support parental leave for the birth or adoption of a new child.
The bill also includes new taxes on middle-class retirement savings and would allow select community newspapers to use otherwise-required contributions to their employees’ pensions to instead prop up their own balance sheets, making newspaper employees’ retirements less secure.
The original bill that passed out of the House Ways and Means Committee after a unanimous, bipartisan vote also included the important 529 expansion Cruz is fighting for in the Senate.
Although the Secure Act is a mixed bag, the 529 provision was one of the good reforms in the original bill.
In a last-minute decision, Democrats removed the education provisions from the bill on a party-line vote in the House Rules Committee before sending the bill to the floor.
The Democrats reportedly caved to special interests representing teachers unions, which object to American families being allowed to spend their own 529 savings on home schooling.
Now, Cruz is fighting to have the previously unanimously agreed-upon expansion of 529 accounts put into the Senate version of the bill before the vote.
A similar amendment was offered and passed the Senate in 2017 as part of the Tax Cuts and Jobs Act. After a procedural objection by Sens. Bernie Sanders, I-Vt., and Ron Wyden, D-Ore., some of the expanded 529 rules, including those for home-schoolers, were stripped out.
The Secure Act also included a last-minute addition to repeal the “kiddie tax” reforms included in the 2017 tax cuts that raised taxes on some Gold Star Families and other dependents who receive unearned income.
The Secure Act makes important reforms to expand some areas of retirement savings, but stops far short of significantly simplifying existing retirement systems and includes many counterproductive provisions that could make retirement less secure for many Americans.
As it stands under the House version, the bad outweighs the good. Including the expansion of eligible education savings could tip the scale back to a neutral package.