The rich get college subsidies during the student loan debate
As an apology of sorts for all this, President Biden wants to exempt up to $20,000 from federal student loan balances for people who make no more than $125,000 a year ($250,000 if you’re married). Certainly eyebrows on the brakes for this six-figure crew.
To allay skepticism, the White House proposed limiting the $20,000 offer to those who started college with much less—which, when they were students, was limited to the federal Pell for people from low-income families. were eligible for the grant. Everyone else would get relief of up to $10,000.
The White House also noted that nearly one-third of borrowers now eligible for relief did not finish school and are burdened with debt, but not to a degree that might have made loan payments more affordable. . Overall, about 90 percent of the loan dollars removed were to go to people earning less than $75,000 a year.
Most people with five-figure incomes have trouble saving a lot of money for college in 529 plans, which allow users to invest money in stock funds that can outpace tuition inflation over time. The tax breaks that come with the accounts — whether they’re state income tax deductions for deposits or avoidance of federal taxes on withdrawals — are often more valuable to those with the highest incomes.
Now, enter those Dynasty 529 plans. Two years ago, an accountant and financial planner named Jeffrey Levine — beloved on tax Twitter for his lengthy, moment-to-moment dissection of complicated law — wrote a treatise of sorts on the subject on the website kitces.com.
In a somewhat confusing, can-you-believe-it-is-real tone that spans more than 6,000 words, he outlined the possibilities. In short, wealthy individuals can front-load large 529 deposits in such a way that the accounts can pay for college educations for many over the decades and still have money for other family members seeking higher education in future generations. is saved. It’s all legal, and if you jump through a few minor hoops, it’s usually tax-free.
In fact, Mr. Levine described a surprising situation where two ambitious grandparents each invested $15,000 a year and let the money grow for 35 years. In that time, they could pay full tuition for four potential grandchildren, assuming a $30,000 annual bill today that would grow at a 5 percent annual rate.