Will the Government Take It?

Barry has a five-year-old daughter and wants to start a 529 for her. However, he is concerned that the government might seize the 529 assets in order to pay off debts and give people treasury bonds instead.

QUESTION: Barry in South Carolina has a five-year-old daughter and wants to start a 529 for her. However, he is concerned that the government might seize the 529 assets in order to pay off debts and give people treasury bonds instead. Dave explains why that is highly unlikely.

ANSWER: I would say less than a 1% chance they seize the actual assets. There are two questions floating around. They are no more likely to come and take investments away from America than they are to come take your home. It’s private property. If you have $100,000 in your retirement fund, and they say they are going to take that, that’s like taking a person’s house away from them. They are not likely to do that. They have a mess and they have to fix it.

The other part of the question is if they are likely to take away some of the tax benefits such as the 529 plan’s ability to grow tax free. As in, they just come in and say they are making all that taxable because they lied and they have bills to pay up in Washington. That could happen. I don’t think it’s going to, but that actually could happen.

The only way I see the first thing happening is if we have some kind of revolution, and we go to communism. If you use Greece as an example, Greece is pretty much socialism bordering on communism. When the state starts confiscating private property, regardless of the reason, you have just moved from freedom completely.

I think Americans will take so much, but at that point there would be pitchforks and torches, and these people would have a problem they never dreamed they’d have. I can’t see that happening. But I can see the unlikely possibility that they start taking the tax money from a Roth IRA after all, because we’re a doofus bunch who can’t balance a budget.

I would save money in your 529 for your kid’s college. I am a proponent of the Education Savings Account, the Roth IRA and the 529, where you keep the government’s hands off the taxes as the laws are written today.

By the way, if they went back and changed all that retroactively, it would be the first time in history they’ve done it. They might start from that point moving forward and grandfathering the old ones in; that’s been done with tax-law change. But turning back the hands of time has never been done in tax history.

I save in a Roth 401(k) in my workplace, so if I’m wrong, I’m in the same boat with you.

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