Maryland bill would roll back federal 529 account changes

Maryland Del. Clarence Lam proposed legislation to undo changes to 529 accounts in the federal tax overhaul.

A bill in the Maryland House of Delegates would undo changes made to 529 education saving accounts by the federal tax overhaul that was adopted in December.

The proposed legislation, sponsored by Del. Clarence Lam (D-12), would restrict the use of Maryland 529 savings accounts to higher education costs, despite the recent federal law opening up the tax-exempt accounts to use for K-12 education. The bill, HB644, went to the House Ways and Means Committee this week.

Lam declined to comment on his bill, but public education advocates have decried the federal changes since they were proposed, arguing that they benefit wealthy private school families and encourage others to leave the public school system.

“[The federal bill] incentivizes upper-middle-class and wealthy Americans to educate their children in private schools by providing them with a tax break,” the American Association of School Administrators said in a call to action in December. “These drastic changes enable anyone, regardless of their wealth, to put aside significantly more dollars for use at private schools, at a greater expense to taxpayers and schools.”

But Ariel Sadwin, the director of the Orthodox advocacy group Agudath Israel of Maryland, supported the federal changes and is lobbying against Lam’s bill. Sadwin says the federal legislation will be a boon to Maryland’s Jewish community, in which the cost of one child’s Jewish day school tuition can easily surpass $20,000 per year.

Sadwin said he recently brought his concerns to Lam, hoping to strike a compromise that would retain the federal benefits for low- and middle-income families or possibly cap the cost of the program to state coffers.

In Maryland, annual contributions to the savings accounts of up to $8,000 are tax-deductible, and preliminary analysis from the state comptroller forecasted a loss of $20 million in state revenue and $11.4 million locally because of the federal changes.

“[Lam’s legislation] is a direct attack on the item that we were seeking in tax reform,” Sadwin said. “I had a meeting with the sponsor and we went straight at it. ‘What are you trying to do and why are you trying to do it?’ It was a good conversation. He’s taking it from the perspective of a member of the appropriations committee and making sure all the dollars available are going to the right places. We obviously look at this as something that can provide benefit to people.”

Democrats, who may be eager to undo components of a tax reform bill their party strongly opposed, hold large majorities in both chambers of the legislature, and Sadwin said that Gov. Larry Hogan, a Republican, has given no indication of whether he’d look to veto the bill if it clears the General Assembly.

Sadwin said he regularly fields questions from day school parents about what will happen next and whether they should be opening or contributing more to 529 accounts to use the money for K-12 tuition.

At this point he’s giving them all the same answer: wait, see and talk to a tax professional.

“Every time somebody sees me they want to know about the 529,” Sadwin said. “My answer to that is, ‘Well, the session is going, a bill has been put forth. We’re optimistic we’ll get through, but there may be other things that get in the way.”

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