Do Section 529 college savings plans, such as South Carolina’s Future Scholar program, disproportionately benefit the wealthy?

That was the premise behind the White House’s January proposal to eliminate the federal tax benefit for 529 plans and use the savings to finance other forms of college aid. That idea was dropped soon after it was proposed due to what Washington-types might call poor optics — it looked too much like a tax hike on middle-class families trying to pay for college.

A 529 plan allows people to invest money for higher education expenses, for themselves or relatives, with no tax due on the earnings if the money’s used as intended. Such plans also allow people to transfer large sums of cash to relatives while avoiding gift or estate taxes, and most of the money in 529 plans, an estimated 70 percent, is controlled by high-income households. In any case, members of both major parties objected to the White House plan, and it appears dead. But some of the issues involved are instructive.

The fact is, lots of federal tax provisions primarily benefit high-income families. College savings plans and retirement plans shelter income from taxes and allow contributions far greater than most families could make. Tax savings from the mortgage interest deduction mostly go to higher income families, and money earned from playing the stock market is taxed at a lower rate than money earned through employment.

The fact that wealthy families get the most benefit doesn’t mean that people with modest incomes can’t benefit from those tax provisions as well. The important thing is to understand the rules. Which brings us back to 529 plans and South Carolina’s Future Scholar program.

Do such plans primarily benefit the wealthy? Yes, they do. They are also a generally good way to prepare for higher education expenses, regardless of one’s income. My middle-class family, for example, has a 529 account, and in South Carolina there’s an extra incentive to have one.

South Carolina’s 529 plan, Future Scholar, offers the additional benefit of a state income-tax deduction for contributions, which means that for most folks, setting aside $1,000 for college tuition really costs just $930, because the tax deduction is like getting 7 percent back. (South Carolina’s top income-tax rate of 7 percent kicks in at low levels of income.)

Here are the basics of how it works:

Individuals create a Future Scholar account and name a beneficiary, typically a child or grandchild, and invest money in their choice of funds, much like a retirement account. The amount in-vested is deductible from S.C. taxable income. (Visit or call 888-244-5674 for more detailed information.)

The idea is that invested money will grow for years, and when it’s time to pay higher education costs, no federal or state taxes will be owed on the gains. Future Scholar investors can choose from a range of stock, bond and money market funds with reasonably low fees.

One tip: Invest directly with Future Scholar, rather than going through a financial adviser, to avoid paying extra fees.

The important thing that many people may not know is this plan isn’t just for long-term savings. The state tax deduction for contributions comes with no requirement for a waiting period. That means anyone who has a check to write for tuition, or room and board, can first put that money in a Future Scholar account, then take it back out, making it tax-deductible in South Carolina.

Obviously, people who have more money to invest, and who face higher federal income-tax rates, are most likely to take advantage of something like a 529 plan. And clearly, they do.

Like many other federal programs, just because the rich disproportionately benefit, that doesn’t mean such programs are only for the wealthy.