For many American families, saving for their children’s college tuition is hard. It can be difficult just to pay current bills, let alone the expense of a college tuition that may be years away.  To help families save for college, Congress passed a tax exemption for college savings plans in 2001 that would allow families to save for college without paying taxes on their savings.

But this tax exemption will not last forever. The tax exemption is set to expire in 2011, which would remove an important option for families struggling to find a way to pay for college.   I recently co-sponsored the Investment in Education Savings Act, which would make this exemption permanent.

These savings plans, known as 529s, are one of the most popular college savings options in the United States. More than 7 million children in all 50 states have had $67 billion deposited on their behalf in a 529 plan.

These plans are so successful because the interest on money deposited in 529 plans is tax-deferred and all of the money that is used to pay tuition is tax-free. For many middle-class families, this means that for every dollar you invest in a 529 plan, you get an extra quarter in tax relief from the federal government to help pay for college tuition.

If the tax exemption for 529 plans is not made permanent, it will be much more difficult for many families to pay for college tuition. For example, a family that started with an initial $5,000 investment in a 529 plan and contributed $100 a month for 18 years could save $15,000 for their child’s college education.  If the tax exemption were to expire, almost $4,000 of those savings would be lost in taxes for most families.  That is the cost of an entire semester of tuition at University of Maryland, College Park for a Maryland resident.

Maryland offers two different tax-free 529 college savings plans for state residents: the Maryland Prepaid College Trust and the Maryland College Investment Plan. The Maryland Prepaid College Trust allows Maryland residents to lock in college tuition at the current level by paying in advance for up to five years of college or community college tuition. The Maryland College Investment Plan offers a more conventional range of investment options that allow families to save money for college.

These plans have played an important role in helping many Maryland families pay for tuition for both two-year and four-year colleges and universities. In Maryland, as in most states, tax treatment of 529 plans for state tax purposes mirrors the federal government.  In addition, participants in a 529 plan qualify for a state income tax deduction of up to $2,500, giving Marylanders event more of a tax cut for each dollar saved. Information on the College Savings Plans of Maryland is available on its website, http://www.collegesavingsmd.org.

A college education should be available to every American who is qualified to attend, and 529 college savings plans help make that a reality.  It’s time for Congress to make the 529 tax exemption permanent so that we can ensure that those who want to attend college or community college have the resources to realize their dream.

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