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Monday, July 29, 2002

Thinking 529 Thoughts

by: InvestmentWires Staff, 

At the 2002 College Savings Plan Summit, the talk of the conference was growth in assets for 529 plans over the past year. This led to a mood of optimism rarely seen these days in the financial services community.

Timothy Lane, vice president of tuition financing at TIAA-CREF, stated in his opening remarks, "529 plans have greatly increased over the past year and that even though assets in the plan have almost doubled in the last six months to eight billion, they are still largely unknown to most Americans."

Lane spoke about intensifying the of marketing 529 plans by meeting state program public policy goals, overcoming perceived shortcomings -- such as financial aid concerns -- and creating a solution-based brand strategy. John J. Hasner, director of national sales at Mercury Funds, spoke about marketing broker-sold programs to the advisor community by building a tuition planning practice.

Luis Fleites, analyst at Cerulli Associates, spoke about the common trends in the distribution of 529 savings plans. "When 529 plans were first introduced, they were only sold from a financial service provider that had won a state mandate. Now, consumers can purchase the plan directly through intermediaries from mutual fund companies, broker/dealers, and banks." Various members of Cerulli Associates discussed how various types of financial service firms are approaching the 529 savings plan market. These approaches included winning state mandates, serving as distribution partners, and selling funds on an investment-only basis.

James W.C Canup, partner for McGuire Woods, discussed how The Economic Growth and Tax Relief Reconciliation Act of 2001 changed 529 Savings Plans. Distributions from 529 plans used for qualified higher education expenses are now tax free instead of just tax deferred. In addition, the low dollar limitations imposed for room and board distributions have been removed. He also spoke about tax-free distributions from qualified tuition programs.

"Prepaid tuition programs, but not savings programs, may now be established and maintained by one or more eligible educational institutions," said Canup. "A program established and maintained by one or more educational institutions must provide that all amounts in the programs are held in a Qualified Trust and have received a ruling or determination that the program meets the requirements of section 529 of the code."

All in all, a great deal of familiar territory was covered at the summit, perhaps to help those firms new to product acquire some grounding. Nonetheless, 529 plan providers appear upbeat about their recent history, and they feel they can gain more clients from those potential investors who do not yet know about the service. 

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