A bill allowing families or individuals to set aside tax-exempt funds for continuing education is being co-sponsored by 14th District Congressman Dennis Hastert, R-Oswego.

Hastert, whose district includes DeKalb, said the accounts are similiar to Individual Retirement Accounts. Under the proposal, families or individuals would be allowed to set aside up to $1,500 annually in tax-free contributions to each account, he said. “There is the potential to raise as much as $50,000 for college,” Hastert added.

The accounts would be set up to provide people with an opportunity to better provide for paying for the rising costs of higher education, Hastert said. “It (the proposal) allows people to take care of their own problems,” he said.

Only one account is allowed per student, Hastert said. Two or more students cannot draw from one account, just as one student cannot have more than one account for himself, he said.

Contributions to the account can be made until the beneficiary reaches 19, Hastert said. Then the person using the account has until age 30 to withdraw the money in the account with no penalty, he said. After age 30, interest earned by the account will be taxed normally, Hastert added.

Until age 30, the money can be used only for “post-secondary education,” which is either college or trade school, Hastert said.

Jerry Augsburger, director of student financial aid, said he had some reservations about a national plan for college tuition based on a state plan proposed in Michigan. The state plan has people pay into a general fund with the state guaranteeing tuition payment in the future. “The problem is that the money set aside might not meet future (tuition) costs,” he said.

“I am not opposed to planning for college, but it (the national plan) helps only a certain group,” Augsburger said. Not much is done to assist “high need families who do not have the money to put away,” he said.

Furthermore, there are unseen costs in the national plan, Augsburger said. The contributions to the account, as well as the interest earned, will not be subject to federal income tax so a source of federal revenue will be lost, he said. There is also the problem of whether or not the accounts actually will be tax-free, he added.

Augsburger said state plans have to wait for a ruling from the Internal Revenue Service to determine if they will be taxed. A national plan might face a similiar obstacle, he said.

owever, Bob Welling, Hastert’s press secretary, said state plans do have to wait for such a ruling but national plans do not. “If the national Congress wants something tax-exempt, it’s tax-exempt,” he said. States can declare something exempt from state income tax but “do not have the leverage” to shelter something from federal taxes, Welling added.