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The summary below was written by the Congressional Research Service, which is a nonpartisan division of the Library of Congress, and was published on May 10, 2016.
Help All Americans Save for College Act of 2016
This bill amends the Internal Revenue Code to modify the tax treatment of qualified tuition programs (known as 529 plans) and ABLE accounts. (Tax-favored ABLE [Achieving a Better Life Experience] accounts are designed to enable individuals with disabilities to save for and pay for disability-related expenses.)
The bill excludes employer contributions to an employee's 529 plan or ABLE account from the gross income of an individual, certain employment taxes, and taxes on self-employment earnings.
The exclusions are limited to the lesser of: (1) the compensation includible in the individual's gross income for the year, or (2) $5,000 ($10,000 in the case of a joint return) for each dependent of the taxpayer who is the designated beneficiary of a 529 plan.
The bill also allows an individual to deduct up to $5000 of the aggregate contributions of the individual to a 529 plan and an ABLE account.
The bill revises the 10% additional tax for distributions from a 529 plan or an ABLE account that are not used for qualified purposes to change the rate to the greater of: (1) 10%, or (2) the highest rate of income tax applicable to the taxpayer.