Jan 22 2015

Fischer Introduces the ACE Act

S. 243 – The Allocating for Children’s Education (ACE) Act Would Increase the Contribution Limit for Coverdell Education Savings Accounts

WASHINGTON – U.S. Senator Deb Fischer (R-Neb.) introduced S. 243 - The Allocating for Children’s Education (ACE) Act this afternoon. The ACE Act would increase the annual contribution limit for Coverdell education savings accounts from $2,000 to $5,000 per beneficiary, enabling parents to earn more money for their children’s education. Fischer released the following statement regarding the legislation:

“Earning a degree is one of the most important investments our children can make for their future success. But as our economy struggles to grow, families in Nebraska and across the country find it increasingly difficult to save. That’s why I have reintroduced a bill that will increase the contribution limits for Coverdell education savings accounts. Our children and grandchildren need the ability to earn a solid foundation for their future and this bill will give families greater flexibility to make this a reality.”

Currently, families can set aside savings in a Coverdell account to pay for expenses like education-related technology, tuition, or tutoring. When funds are withdrawn from the Coverdell account and used for qualified educational expenses, they are entirely tax-free. As a result, families who regularly contribute to Coverdell accounts can save thousands of dollars over the long-term. Fischer’s bill - The ACE Act - would increase the contribution limit for Coverdell education savings accounts from $2,000 to $5,000. Qualified elementary and secondary education expenses currently include:

  • Tuition, fees, academic tutoring;
  • Special needs services;
  • Books, supplies, and other equipment for students enrolled in public, private, religious school, or qualifying home school states;
  • Expenses for the purchase of any computer technology or equipment or Internet access and related services.

The changes to Coverdells made by this bill would apply to taxable years beginning after the date of the enactment of this act.  As a result, it would enable families to earn more money while responsibly saving for their children’s education.

The Wall Street Journal published an editorial this morning highlighting the dangers of such an initiative and called for meaningful reforms, which The ACE Act would include. The Journal’s editorial notes:

Mr. Obama wants to allow the IRS to tax as income any withdrawals from future 529 contributions. This would make them less attractive. The White House goal seems to be to discourage private thrift, and encourage greater use of government benefits, when paying for college…

We’d favor a true tax reform with lower rates that replaced all tax subsidies, including those for education. But absent such a reform, Mr. Obama’s plan looks like an attempt to punish private savings in favor of politically controlled subsidies and grants.

Click Here to view text of The ACE Act.