Introduced in 1996 to incentivize taxpayers to save money for their young relatives, 529 plans are college savings accounts that are exempt from federal taxes. These funds could only be applied to eligible institutions of higher education.
Under this legislation, distribution aggregation requirements for 529 plans would be eliminated. Previous changes in the tax treatment of 529 plans made their distributions tax-free, which makes aggregating the distributions unnecessary.
Refunds from colleges to a student’s 529 account would be permitted if they occur within 60 days of the student withdrawing from college. This would be a change from the current law, which subjects refunds to the income tax on earnings and a 10% penalty. This would only apply to distribution taken after December 31, 2014.