In President Obama’s State of the Union address on Tuesday January 20, 2015, he proposed ending the tax break associated with 529 plans. These plans are not tax deductible, but the interest income gained in them is not taxed.
President Obama wants to raise the American Opportunity tax credit, and have the cost offset by ending the tax benefits for 529 plans. More affluent people tend to invest in 529 plans, and the American Opportunity tax credit benefits low and middle class taxpayers.
The proposal is based on concerns of fairness, and education is a primary driver of improving people’s economic status. In other words, more people getting higher education should benefit society as a whole.