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COLORADO TUITION PROGRAM DEDUCTION
In addition, we found that although the deduction may help offset the
cost of college for beneficiaries, this benefit is relatively small in
comparison to the typical cost of higher education. Specifically, based
on school tuition, room, and board data for Academic Year 2017-2018
from the National Center for Education Statistics, we estimated the
average cost of attending an in-state public college in Colorado for 4
years starting in Academic Year 2017-2018 would cost about $94,000.
After adjusting for annual tuition inflation of 6 percent, we estimated
the cost of the same hypothetical college in Colorado would cost nearly
$270,000 for 4 years starting in Academic Year 2036-2037. In
comparison, if taxpayers received an annual tax benefit from the
deduction of about $400 per year, the average tax benefit of the
deduction in Tax Year 2018, through 18 years of saving, they would
receive a total benefit of $7,200 or about 3 percent of the total cost of
4 years of tuition, room, and board at an in-state college starting in
Academic Year 2036-2037. Further, it is likely that many individuals
do not save for 18 years and do not save an additional amount
equivalent to the tax benefit they receive from the deduction, so this
example likely overstates the typical benefit it provides.
WHAT IMPACT WOULD ELIMINATING THE TAX
EXPENDITURE HAVE ON BENEFICIARIES?
If the 529 Deduction was eliminated, individuals contributing to 529
accounts that previously claimed the deduction would experience an
annual increase of about $400 in their tax liabilities, based on the
average amount deducted by taxpayers in Tax Year 2018. For a
taxpayer claiming the average deduction amount over 18 years,
eliminating the deduction would result in about $7,200 in lost tax
savings. While taxpayers would still be able to receive the exemption
from federal and state income taxes on interest earned on contributions,
repealing the deduction could result in taxpayers deciding not to save,
making fewer contributions to CollegeInvest 529 accounts, or utilizing
other saving vehicles. Collectively, this could reduce the number of
individuals and families saving for higher education in Colorado,
though we could not quantify this potential impact.