OLYMPIA- Thousands of Washington families in the state’s prepaid college tuition program will benefit from new federal tax legislation that makes program earnings permanently tax free.
President Bush was scheduled to sign federal pension legislation today, including a provision that all so-called Section 529 higher education savings accounts will be permanently tax free when used for tuition, room and board, and other college expenses.
Without the new law, the tax exemption would expire in four years.
More than 40,000 children in Washington state are enrolled in the state-sponsored Guaranteed Education Tuition program, which uses the slogan “buy tomorrow’s college tuition today.”
Here’s how it works: The GET plan allows family and friends of the child to buy tuition units at today’s prices. The student can cash it in for college years from now, when costs will have presumably escalated.
The current unit price is $70. It takes 100 units to buy a year of college, based on in-state undergraduate tuition at a state school. The maximum savings is 500 units per student.
The savings may be used at nearly any college or vocational school in the country, public or private. If the beneficiary decides not to go to college, the money can be transferred to another family member or a refund can be requested.
The unit price is recalculated each year, rising as the cost of higher education goes up. When the program started in 1998, for instance, the cost per unit was $35.
Parents or other benefactors can open an account and pay in full or contribute monthly or as money becomes available to the family, said spokeswoman Whitney DalBalcon.
“It’s a great way for the grandparents to contribute at the holidays or for birthdays,” she said. “You can send a check when you have a little extra money or sign up for a monthly automatic withdrawal.
So far, 5,388 students have or are using their account.
Students who enter college after 2011 will benefit from the new federal law, said Betty Lochner, program director. Rather than have the earnings subject to federal income taxes, all the money will be available for higher education.
“By making this federal tax break permanent, Congress and the president are rewarding families who are saving for college and trying to entice more families to get started,” Lochner said.
The program reopens for new enrollments on Sept. 15.
State Treasurer Michael Murphy said Washington’s congressional delegation was instrumental in getting the college savings amendment approved, including Sens. Patty Murray and Maria Cantwell and Reps. Doc Hastings, Rick Larsen and Cathy McMorris, all co-sponsors.
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