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A Man With a Plan

Greg Spears

YOU COULD CALL ME a 529 superfan. The college savings plans helped me put my two kids through college. Their state and federal tax advantages cut the exorbitant cost of college just enough so we didn’t have to borrow for our two kids’ education.

Which makes it surprising that I knew the man who created the 529 plan—but I didn’t realize he’d fathered them.

I covered Senator Bob Graham of Florida as a newspaper reporter in Washington in the 1990s, but left the beat the year before he introduced his 529 legislation. I only learned of his role in 529s shortly before he died on April 16 at age 87 in a retirement community in Gainesville, Florida.

As a senator, Graham was tan and affable, but he spoke hesitatingly, choosing his words with care. He was what my old political science professor would have called a workhorse, not a show horse. A Harvard-educated lawyer, Graham concerned himself more with details than speech-making, and he worked well in a divided legislature.

A Democrat, Graham worked across the aisle with Senator Mitch McConnell of Kentucky, a Republican, to write and pass the rules around 529 plans. About a dozen states, including Florida, had created state college savings plans by then, but the rules were inconsistent and limiting.

In Florida, for example, parents could buy a tuition credit for a newborn at a fixed price that would pay for one credit hour of classes 20 years later. That was quite a bargain given the inflation rate in education, but it only worked if your child attended a state university in Florida. If your child went to an out-of-state institution or to a private college in Florida, you got a refund of your money paid, not college credits.

Graham realized we needed one college savings system for the entire nation, so parents in any state might participate. In the legislation he introduced in 1996, Congress sheltered the gains in 529 plans from federal taxation. Later, in 2001, Congress went further, exempting plan withdrawals from federal taxes providing the money was spent on higher education.

With those tax breaks in place, 49 states have created 529 plans for their residents—Wyoming is the lone exception. I contributed a great deal of money to 529 plans, and I saved a lot of money because of them. I invested through a low-cost 529 plan in Utah, which my home state of Pennsylvania permitted. Our 529 accounts helped put our son Michael through Ithaca College, and our daughter Genevieve through Franklin and Marshall.

Paying eight years of college bills took every spare cent we could scrape up. How did 529s help? I found a credit card that would give me 1.5% back on all my spending, with the money deposited in a 529 plan. Every year when my kids were young, my wife and I contributed about $13,000 each annually to the Utah 529. We could deduct those contributions from our reported state income.

Pennsylvania’s tax rate is 3.07%, so that deduction saved us almost $800 a year. We owed no taxes on plan withdrawals for tuition, books and fees. One way and another, I estimate that 529 plans reduced my kids’ college costs by 10%.

Senators aren’t known to be shrinking violets, and fathering a program like the 529 could have made Graham’s name enduring—if he’d attached his name to the plans. That’s how Senators Claiborne Pell, William Roth and J. William Fulbright have kept their names alive long after they’ve departed. Not so with Graham. The 529 takes its name from its section in the federal tax code, just like the 401(k).

The word on Graham in Washington was that he lacked charisma. The Washington Post described him once as a “sober, conscientious, unfailingly courteous grandfather who couldn’t light up a room with a barrel of Iraqi crude and a Zippo.”

When I interviewed Graham, he was careful with his words. He would repeat your question, and maybe question its premise. He had a smiling, courteous presence, but he didn’t have a free and easy way about him. Yet voters seemed to sense his seriousness and purpose. He never lost an election. He served two terms as Florida’s governor and three as its U.S. senator. What he lacked in style, he made up for in substance.

Greg Spears is HumbleDollar’s deputy editor. Earlier in his career, he worked as a reporter for the Knight Ridder Washington Bureau and Kiplinger’s Personal Finance magazine. After leaving journalism, Greg spent 23 years as a senior editor at Vanguard Group on the 401(k) side, where he implored people to save more for retirement. He currently teaches behavioral economics at St. Joseph’s University in Philadelphia as an adjunct professor. The subject helps shed light on why so many Americans save less than they might. Greg is also a Certified Financial Planner certificate holder. Check out his earlier articles.

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