LiLAs are gaining support on Capitol Hill as a way to keep our workforce competitive and provide working Americans with the education and training needed to advance in their careers. On May 12th, 2008, Representative Rahm Emanuel (D-IL), addressed the Financial Services Forum’s town hall discussion on “Succeeding in the Global Economy” at the Illinois Institute of Technology. At the forum, Emanuel announced his plans to introduce the Lifelong Learning Accounts Act of 2008 with Representative Jim Ramstad (R-MN). The legislation, H.R. 6036, was introduced the following day. A fundamental building block for Emanuel’s New Deal for the New Economy is educating and training workers. Under current law, there is no savings vehicle that is owned by employees and encourages employers' co-investment in education. Among the legislation provisions:
- Individuals and employers may contribute a total of $2,500 per year into a Lifelong Learning Account.
- As much as $750 of that could be refunded through a tax credit (50% of the first $500 contribution and 25% of the next $2,000).
- Principal and earnings in the accounts can grow tax-free, and will be taxed as ordinary income when they are withdrawn. (A 10% penalty for unqualified expenses would be waived at age 71.)
- Employers would receive a tax credit for 25% of their contribution to the accounts.
- Small employers could get a tax credit of up to $500 per year to cover administrative start-up costs.
For more information, please see the press release, bill summary, and bill text for HR 6036.
LiLA Legislation Introduced in 2007
On January 4, 2007, Senators Maria Cantwell (D-WA) and Olympia Snowe (R-ME) introduced the Lifelong Learning Accounts Act of 2007 to establish a national demonstration of Lifelong Learning Accounts. Representative Tom Allen (D-ME) introduced similar legislation in the House in June 2007.
The proposed federal program is designed to demonstrate multiple approaches to Lifelong Learning Account tax benefits and targets tax incentives to lower and middle-income earners and their employers to save and spend for education and training to improve their career related skills and knowledge. The demonstration would have the following features (subject to amendments and technical corrections):
- The demonstration would serve up to 200,000 individual workers in 10 states. States would be selected in a competitive process as prescribed by the Secretary of Treasury.
- In the selected demonstration states, any person who is employed could contribute up to $5,250 (adjusted annually for inflation) to an account owned by that individual.
- The LiLA owner would receive a tax credit for contributions up to $500 per year and withdrawals would be tax free.
- The individual credit would be phased-out for contributions by the LiLA owner for those with modified adjusted gross incomes over $55,000 ($75,000 for joint filers).
- Employers would have an option to match individuals' contributions to LiLAs and would get a credit for each dollar matched, up to $500 per year.
- An individual can use the funds in his or her account at any time, and funds can be used to pay for all expenses and courses of instruction described in Section 127(c)(1) of the tax code, which includes tuition, fees, books, and supplies. The funds also can be used for additional expenses that the Secretary of the Treasury prescribes after consultation with the Secretary of Labor, including tools, equipment, information technology devices, and training and apprenticeship programs.
For more information, please see the CAEL press release, the bill text for S26, the bill text for HR2901, the Bill Summary for HR2901, and the Bill Summary for S26,
How LiLAs Compare to Other Federal Policy- Extended Expiration. LiLAs do not expire at age 30, unlike
Coverdell Education Savings Account (formerly Education IRA).
- Employment Status Has No Effect. A LiLA program participant
may use their LiLA for education and training whether or not the taxpayer
is employed at the time of expenditure, unlike an employee education expense
tax deduction.
- Increased Employer Participation. LiLAs offer an employer
matching option, unlike a Hope Scholarship, Lifetime Learning Credit, or
Coverdell ESA.
- Portability. LiLA accounts are portable, unlike Section
127 employer plans. Individuals do not have to be at least a half-time student,
unlike with Hope Scholarships.
- Lifelong Contributions. LiLA employee and employer contributions
may be made at any time during the employee's life, unlike Coverdell ESA
contributions which must be made before the beneficiary is 18.
Coastal Maine and Greater Kansas City regions both won three-year $15 million grants from the United States Department of Labor to integrate workforce development, higher education and economic development as part the WIRED (Workforce Innovation in Regional Economic Development) initiative.
Both regions' WIRED proposals included LiLAs as one of the core strategies for economic and workforce development, promising continued momentum for LiLAs in those states.
For more information about LiLAs, please contact Amy Sherman at CAEL, asherman@cael.org, or visit the LiLA Quick Links located in the upper left column.