The Ownership Society offers help with college costs, too, so that a family can pay for higher education while sparing both the parents and the children the burden of heavy student loan debt.
The mechanism, for the family that can afford it, is the Section 529 plan.
Contributions to these plans, which are run by the states, are not deductible for federal taxes, but their earnings are tax-free when used for higher-education expenses.
Some states allow contributions of more than $100,000, and a special federal gift-tax provision allows donors to use five years' worth of annual gift-tax exclusions at once -- $55,000 for one parent at current rates, double that for a couple -- amounts potentially sufficient to fund even an Ivy League education, assuming moderate investment returns.
There are no federal income limits on participation in 529 plans.
Besides reducing or eliminating student debt, a big 529 plan may enable offspring of well-to-do families to attend better colleges than their high school grades might otherwise allow. That is because all but a handful of the richest and most prestigious colleges now take ability to pay into account in admissions decisions.
Also available to some families are Coverdell education savings accounts. Contributions to these are also not deductible and are limited to $2,000. Unlike 529 plans, they are restricted to the not really rich. The ability to contribute phases out for a married couple with income between $190,000 and $220,000.
But Coverdells can be used for elementary and secondary education expenses, not just college, allowing families to begin funding for a newborn, and perhaps accumulate enough to pay parochial or private school tuition a decade later.
Many in the upper half may thrive in the Ownership Society. In addition to being able to lower their current taxes and provide generously for their own retirement, they will be able to share benefits with their children and grandchildren, perhaps giving them a leg up in their own lives.
In fact, the right to pass on savings to future generations is a thread running through many elements of the Ownership Society. That, too, is a break with past programs.
Both traditional pensions and Social Security pay a stream of income to the retired worker. But at his death, or the death of his widow, the benefit simply ends. That is not the case with 401(k)s, in which any remaining money can be bequeathed to heirs. Nor, apparently, would it be the case with the proposed personal Social Security accounts, which would be the property of the worker/retiree and part of his or her estate.
Another provision that can help the next generation will be Roth 401(k) plans, which employers will be able to offer beginning next year. Like Roth IRAs, they will be funded with a worker's after-tax dollars; similarly, withdrawals will be tax-free. But Roth 401(k)s will also allow much higher contributions than regular IRAs -- the same as those for other 401(k) plans -- thus allowing an end run around the income limits that make many well-to-do people ineligible for a Roth IRA.
The advantage for the next generation is that those affluent enough to let the money accumulate until they die will be able to name a child or grandchild as the beneficiary of the account . The child will be required to withdraw the money over his or her expected lifetime, receiving what is essentially a lifetime stream of tax-free income.
With this level of asset accumulation, the estate tax could present a problem, but that tax is repealed for 2010 and Republicans are hoping to make that change permanent.
