Senate panel votes to expand tax-free college accounts

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WASHINGTON (AP) — A Senate panel passed a bill Wednesday that would expand popular tax-free college savings accounts that President Barack Obama failed to scale back.

The Senate Finance Committee voted 26-0 to send the bill to the full Senate. The bill would let students use money from college savings accounts to buy computers and other technology, something they cannot do now with tax-free distributions from the accounts.

The House passed an identical bill in February by a vote of 401-20.

"The additions give more flexibility for using the tax-free savings. The more flexibility, the more people use something like this," said Sen. Chuck Grassley, R-Iowa, who sponsored the bill. "The bill also sends the message to families that Congress supports this program and will fight efforts to get rid of it."

About 12 million families take advantage of the 529 college savings plans, named after a section in federal tax law. The bill would add $51 million to the budget deficit over the next decade, according to the nonpartisan Joint Committee on Taxation, which provides official estimates for Congress.

Contributions to the accounts are not tax-deductible. But once the money is invested, it can grow and eventually be withdrawn with no tax on the earnings as long as the money is spent on tuition, fees, books and supplies needed to attend postsecondary school.

The savings plans are sponsored by states and also can be used to prepay college tuition.

In January, Obama proposed eliminating the tax benefits of future contributions to the accounts as part of an education package that would simplify an often confusing array of tax breaks for college students.

But Obama was forced to quickly withdraw the proposal after both Republicans and Democrats panned it.

Since then, the White House has said the administration does not oppose legislation expanding the accounts.

The bill has broad bipartisan support and appears to be on a fast-track to the president's desk. However, tax bills often attract a wide variety of amendments that have little to do with the original bill, which could complicate the process once the full Senate takes up the legislation.

On Thursday, Finance Committee Republicans defeated several Democratic amendments.

The bill would make some technical changes to the accounts. For example, if a student uses money from an account to pay tuition that is later refunded for some reason, the bill would allow the student to deposit the money back into the account without paying a penalty.


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