Bloomberg BNA Q&A: Talking 529 College Savings Plans with South Carolina Treasurer Curtis M. Loftis Jr.


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Have you heard of 529 College Savings Plans? The data suggests probably not. A May 2016 survey, conducted by the financial services firm Edwards Jones, revealed that nearly three out of four Americans do not know what these plans are. 529 College Savings Plans—named after section 529 of the Internal Revenue Code— are plans, typically operated by states, which provide tax advantages and other incentives to encourage individuals to save for college and other post-secondary education. With the increasing cost of college and the corresponding rise in student loan debt, these plans can provide huge benefits for future college students and their families.

In this interview, Curtis M. Loftis Jr., the state treasurer for South Carolina, discusses Future Scholar, the state’s 529 College Savings Plan. He also discusses how federal tax reform could impact the future of these plans on the state level. Further, the interview touches on ABLE accounts, which provide similar tax benefits as 529 College Savings Plans, but for individuals saving for costs associated with caring for a disabled family member.

Bloomberg BNA: South Carolina offers a national 529 College Savings Plan, Future Scholar, for its residents. What are the state tax implications for individuals who choose to use the plan?

Loftis: South Carolina has a very generous state income tax deduction for 529 contributions. South Carolina taxpayers enjoy a state income tax deduction of 100 percent of their contributions into South Carolina Future Scholar 529 accounts.

Additionally, the money deposited into Future Scholar accounts is not taxed as it grows and won’t be taxed when it is withdrawn as long as the distributions are used for qualified education expenses.

Bloomberg BNA: Do you feel the Future Scholar program provides adequate tax incentives to encourage parents to start saving early for their children’s education? If not, what changes would you like to see made?

Loftis: I feel that Future Scholar offers excellent tax incentives to encourage college savings.

Future Scholar has one of the best state tax deductions of any 529 plan. Currently, only 34 states and the District of Columbia offer a state income tax deduction or state tax credit for contributions to 529 plans. Of the states that do offer tax benefits, not all offer a 100 percent tax deduction for 529 contributions—so we feel fortunate to offer this to our residents. Saving with Future Scholar for a child’s education benefits both the child and the contributors, which makes saving for college more appealing.

We specifically educate parents of young children about the importance and value of starting to save early for future education expenses. We believe that starting to save early and 529 college savings of any amount puts South Carolina children and families on the path to a brighter future and will lessen the financial burden of future education costs.

Bloomberg BNA: With the swearing in of the 115th Congress, many people are anticipating changes to the federal tax code. How could federal tax reform impact 529 College Savings Plans on the state level?

Loftis: Any federal changes to section 529 have the potential to impact our program as well as 529 programs everywhere. Many of the benefits of section 529 plans are afforded to us by federal legislation, such as tax advantaged treatment of contributions and gifting capabilities.

At the state level, the Future Scholar tax benefits are furthered by the fact that there is an unlimited state income tax deduction for South Carolina taxpayers and a generous per-beneficiary contribution limit ($400,000) that further incentivizes people to use the 529 plan as a preferred strategy for college savings.

The good news is that current proposed (federal) legislation, namely H.R. 529 (The 529 and ABLE Account Improvement Act of 2017) continues the trend of recent legislation and would serve to further strengthen 529 accounts as well as increase their flexibility. The new legislation includes a provision to make student loan payments a qualified expense, which is not currently allowed.

The proposed legislation would also expand the tax credit available for small businesses with pension startup costs to include the cost of establishing payroll contributions into a 529 program, as well as exclude up to $100 of employer contributions from being considered compensation. Certainly, if passed, the legislation would likely increase access to 529 plans through employers and would become a more integral part of employer benefit packages. This would certainly be a point of emphasis for us in South Carolina, as we have offered employer programs for some time.

Bloomberg BNA: South Carolina’s Achieving a Better Life Experience (ABLE) legislation was signed into law in April 2016. Under this legislation, the Office of the State Treasurer has been tasked with implementing tax-advantaged ABLE savings accounts to South Carolina residents. Later this year, your office will be providing more information regarding the specifics of South Carolina’s ABLE program.  What will the state tax implications be for whichever program is ultimately selected?

Loftis: Like our 529 college savings program, we are very fortunate to offer an unlimited tax deduction for contributions into ABLE accounts (or 529A accounts).

On the ABLE side, a South Carolina taxpayer can actually take a deduction for contributions into any state’s ABLE program, not just the South Carolina-sponsored program. This is definitely an advantage to South Carolinians looking to contribute to an ABLE account.

Currently, a South Carolina taxpayer must contribute to the Future Scholar 529 Plan in order to take a state tax deduction. Whereas if a SC taxpayer were to invest in an out-of-state 529 plan, they would not be entitled to the state tax deduction.

Bloomberg BNA: This past January, you became President of the National Association of Unclaimed Property Administrators (NAUPA). What is the purpose of this association?

Loftis: NAUPA’s goal is to increase awareness of unclaimed property as a vital consumer protection program.

Its purpose is to promote and strengthen unclaimed property administration and interstate cooperation in order to enhance states’ return of unclaimed property to its rightful owners and to provide a forum for the open exchange of information and ideas.

Bloomberg BNA: In your new role as the association’s president, what are your plans for handling unclaimed property in South Carolina?

Loftis: The South Carolina Unclaimed Property Program is something I am very passionate about. Since taking office, the annual amount returned has almost doubled, and the program has returned more than $100 million to South Carolinians.

As president of the association, I will continue to work with other states to identify and standardize best practices to improve our program and increase the amount of funds returned to our citizens.

Bloomberg BNA: What do tax practitioners need to know when dealing with unclaimed property in the state?

Loftis: I believe holder education is a key component to compliance with the state’s unclaimed property laws.  If a business discovers they are holding past due unclaimed property, I encourage you to contact my office.

We have a voluntary disclosure program that allows businesses to come into compliance without incurring any interest or penalties for past due property. We also have an outreach and compliance team that will conduct educational seminars for businesses and associations.

Our goal is to work with businesses to ensure they are aware of, and comply with, unclaimed property laws.

Bloomberg BNA: Regarding this year’s state budget, what do you think will be the key tax-related issues that arise?

Loftis: There may be a significant increase in the gas tax to fund infrastructure.

For more information about what to expect in South Carolina's upcoming legislative session, check out Bloomberg BNA's 2017 State Tax Legislative Previews.

Interview by Jerry Gianakis