WASHINGTON — House and Senate negotiators will be meeting to resolve differences in the Republican tax overhaul bills, and an outstanding item is whether a tax-free college savings account can be opened for a fetus.
Will this legislation about unborn children and 529 plans — named after a section of the IRS code — survive?
One needs a Social Security number to open up a college savings account. That’s ostensibly all that this is about, letting a fetus be eligible for a Social Security number.
It is really an anti-abortion related ploy in disguise.
Illinois State Treasurer Mike Frerichs, a Democrat, noted when we talked on Monday that there is already a system in place that, for a practical matter, allows college savings for unborn children.
All one has to do is open a 529 account and change the beneficiary when a child is born, Frerichs said.
“It’s not about savings. It’s about pushing a social agenda,” he said. “They are using tax policy to undermine Roe v. Wade,” the landmark Supreme Court abortion rights case.
“. . . When they say this is about tax reform, that’s not what this is about. . . . It is a solution to a problem that does not exist,” Frerichs said.
The unborn child language is not in the bill the Senate Republicans barely passed Saturday on a 51-49 party-line vote.
GOP senators had enough differences to resolve without injecting into their debate — via this back door — the politically charged abortion-related question of when life begins.
If this provision becomes part of the tax revision sent to President Donald Trump to sign, it will be a victory for the anti-abortion forces because it will define in federal law that life starts at conception.
A 529 plan allows investments to grow untaxed for educational expenses. In Illinois, there are about 450,000 of these 529 accounts, according to Frerichs.
The House bill, also passed with Republican votes, with all the Democrats voting no, states a “ ‘child in utero’ means a member of the species homo sapiens, at any stage of development, who is carried in the womb.”
College savings plans can generate a pot of tax-free cash in part because it creates a great incentive to invest years before the money is needed.
What kind of money are we talking about here?
Let’s figure that a woman determines she is pregnant at two months and wants to open up a 529 right away. What is seven months worth? I asked Frerichs to help figure it out, based on Illinois averages.
His office calculated that the average rate of return for a popular Illinois Bright Start Advisor plan portfolio is 3.88 percent. Seven months of interest at that rate is a 2.26 percent return.
If a person opens an account with $10,000, that would mean $226 in interest for that seven months.
This debate triggered about getting unborn children Social Security numbers is about abortion — not this relatively small amount of money when compared to overall college costs.
We most often think of 529 college savings plans as something for children. Freichs noted that adults who want to stockpile tax-free cash to go back to school — even in retirement — can open 529’s for themselves.
No matter where you stand on the always contentious issue of abortion — if you want to start to save for a baby on the way, or one that has yet to be conceived, or a grandchild or niece or nephew, you can open a 529 account today.
FOOTNOTE: Frerichs was in Washington to lobby for more generous provisions for the ABLE Illinois program, which allows disabled individuals getting federal benefits to have families set up savings plans.