Senate OKs plan to help parents put money away for college tax free

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saving-for-collegeThe Senate approved a plan on Wednesday to help parents save for their child’s college education by allowing them to direct deposit tax refunds into qualified tuition-program accounts. “Given today’s economy, and as college costs continue to increase, we must help provide the financial tools to save for college,” Sen. Jenny Oropeza, D-Long Beach, said after the Senate voted 21 to 12 on Senate Bill 323. “Distributions from these accounts are tax free—provided the funds are used for higher-education expenses.” Current law allows any tax refund to be deposited directly into a taxpayer’s checking or savings account. SB 323 would allow for a similar direct deposit into a qualified tuition program, known also as a 529 plan. Oropeza cited several reasons to support SB 323: 

  • Data from the U.S. Census shows having a college degree can double future annual earnings.
  • During the last 10 years, the average cost of tuition and fees at the University of California has increased by 62 percent. Last month, the California State University Board of Trustees passed a 10-percent increase, the seventh increase since 2002.
  • The state Franchise Tax Board processes nearly four million direct-deposit refunds into checking and savings accounts each year. SB 323 would allow for a similar direct deposit into 529 plans, making investment into these plans easier.
  • SB 323 would improve awareness of the 529 plans because annual tax forms would ask if taxpayers want to deposit part of their tax refund into a 529 plan.

Sponsored by state Treasurer Bill Lockyer, supporters of SB 323 include the Association of Independent California Colleges and Universities; the California Catholic Conference; the Los Angeles Area Chamber of Commerce; and New Economics for Women. SB 323 will next be heard in the Assembly, where the measure has three Republican coauthors. No date has yet been set on the bill to help parents in California save for tuition.

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