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Monday, October 05, 2009

529s Attract Interest from the Obama Administration

by: Adam Kommel

The Obama administration is hoping that 529 college-savings plans can work for middle- and low-income families, The Wall Street Journal reported Monday.

Among the changes proposed to 529s is to allow state-tax benefits to be available no matter which state's fund a family invests in. Right now, tax benefits in most states are only offered to families that invest in their home states' plans.

The Treasury Department has suggested a cap on contributions for each beneficiary, though it did not give a specific number. Such a plan would prevent high-income families from possibly avoiding estate taxes and would also “potentially free up federal resources for education aid that could be targeted to low- and middle-income families,” according to a Treasury report.

The Treasury also encouraged use of low-cost index funds to reduce expenses. Many states do not currently offer index funds in their popular age-based portfolios, which are similar to target-date retirement funds but grow more conservative as the beneficiary reaches college age.

At the end of June 2009, there was $98.6 billion invested in 529 plans. 

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