Quantcast
The MFWire
Manage Email Alerts | Sponsorships | About MFWire | Who We Are

Subscribe to MFWire.com's News Alerts [click]

Rating:State Greed Puts 529s at Risk Not Rated 5.0 Email Routing List Email & Route  Print Print
Tuesday, April 22, 2003

State Greed Puts 529s at Risk

by: Sean Hanna, Editor in Chief

Are states threatening to strangle the 529 plan market before it has gotten out of the crib? Fund managers have long talked about states demanding a relatively large cut of the fees from college savings programs, diminishing the possibility for profits among their partners. Now some states are seeking ways to take additional monies from the investors also.

In one sign that of a shift, the state of Washington has quietly dropped plans to start a new plan in partnership with ICMA. The state had tapped ICMA, which specializes in offering retirement plans to state and local government workers, to find a distribution partner for the new plan. However, ICMA reportedly dropped out of the program when it was unable to find any national distributor willing to take up the challenge. The state has no immediate plans to rebid the contract.

ICMA's inability to find a distribution partner likely reflects more than just the bear market. Other providers have told the MFWire.com that the need to split fees between the 529 plan administrators, asset managers and the state sponsors is squeezing profits out of the college savings market. In some ways, the 529 market is starting to look like the high overhead 401(k) market, except that the sponsor is taking a cut too.

At the same time some states are now eyeing the assets in these plans, especially out of state plans held by their residents, as they try to balance their books in a tax-starved environment. If each state puts up barriers to residents trying to purchase out of state plans, the attractiveness of these programs to national distributors will diminish even more.

On April 1, Tennessee said that it would tax the interest and dividends in excess of $2,500 that its residents earn on out-of-state 529 plans. Not only does this diminish the attractiveness out out-of-state plans, it also imposes a burdensome recordkeeping requirement on residents and administrators.

New York is also putting up a wall. The Empire state is planning to punish state residents who switch to another state's plan by taxing the capital gains earned inside the account. It also seeks to make resident pay back taxes on the deductions that they took through the plan. Two more states -- Illinois and Maine -- have cynically decided to impose state income taxes on out-of-state 529 accounts owned by their residents. Maine's tax, which can reach 8.5 percent, was designed specifically to raise revenues during the current downturn and will sunset in three years. Illinois, which taxes income at 3 percent, has no plans to drop the tax it imposed last year.

By erecting these barriers, states are signaling to account holders that out of state plans are fair game for taxation. Sophisticated investors and advisors located in states that are not currently taxing out of state plans have to wonder what the future may hold. Even the potential of taxation will cause some of these investors to prefer an inferior in-state plan to a superior out-of-state plan.

If that happens, 529 plans will not become the nationally distributed product that providers hope they will be. It also ensures that many programs will never achieve the scale to be profitably distributed. Like the plan in Washington, they will wither, or even die.  

Stay ahead of the news ... Sign up for our email alerts now
CLICK HERE

5.0
 Do You Recommend This Story?



GO TO: MFWire
Return to Top
 News Archives
2025: Q3Q2Q1
2024: Q4Q3Q2Q1
2023: Q4Q3Q2Q1
2022: Q4Q3Q2Q1
2021: Q4Q3Q2Q1
2020: Q4Q3Q2Q1
2019: Q4Q3Q2Q1
2018: Q4Q3Q2Q1
2017: Q4Q3Q2Q1
2016: Q4Q3Q2Q1
2015: Q4Q3Q2Q1
2014: Q4Q3Q2Q1
2013: Q4Q3Q2Q1
2012: Q4Q3Q2Q1
2011: Q4Q3Q2Q1
2010: Q4Q3Q2Q1
2009: Q4Q3Q2Q1
2008: Q4Q3Q2Q1
2007: Q4Q3Q2Q1
2006: Q4Q3Q2Q1
2005: Q4Q3Q2Q1
2004: Q4Q3Q2Q1
2003: Q4Q3Q2Q1
2002: Q4Q3Q2Q1
 Subscribe via RSS:
Raw XML
Add to My Yahoo!
follow us in feedly


    Sorry, no records in the database matched your search parameters. Clich back and try again.



  1. Nicsa webinar - New research by Alex Edmans and the Diversity Project - The Power of diverse thinking: How the best teams make decisions, July 1
  2. MFDF Director Discussion Series - Open Forum, July 9
  3. MFDF webinar - Mid-Year Tax Update for Registered Investment Companies, July 10
  4. MFDF Director Discussion Series - Open Forum (Philadelphia), July 15
  5. 2025 MMI Women in Advisory Solutions Forum, Jul 15-16
  6. Nicsa webinar - How Trusted GenAI is Transforming Data Access in Asset Management, July 16
  7. MFDF webinar - M&A and Consolidation in Asset Management, July 16
  8. MFDF webinar - ETF Conversions, July 17
  9. MFDF Director Discussion Series - Open Forum (New York), July 22
  10. MFDF Ask Anything webinar - AI Edition, July 24
  11. MFDF webinar - Use of Derivatives by RICs, July 29
  12. MFDF Director Discussion Series - Open Forum (Columbus, Ohio), August 20
  13. Samfund Soiree Boston 2025, August 21
  14. MFDF webinar - The Audit Committee Chair's Guide to Balancing Duties and Emerging Issues, September 3
  15. ICI ETF Conference, Sep 8-10
  16. Nicsa webinar - Reimagining Reconciliation: AI, Regulation, and Capital Markets Transformation, September 10
  17. MFDF webinar - Series Trust Funds - Compliance and Board Reporting, September 10
  18. MFDF In Focus - Board Oversight of DEI in Current Landscape, September 11
  19. MFDF webinar - MFDF 15(c) White Paper Webinar Series: Part 4 – Enforcement Action Takeaways, September 16
  20. MFDF webinar - Latest in Closed-End Funds Litigations, September 23
  21. MFDF webinar - Fixed Income Insights: Navigating Market Trends & Opportunities, September 24
  22. MFDF webinar - Risk Management Essentials for RICs and Boards, September 29
  23. MFDF webinar - Diligent - Tools for Fund Board Book, October 1
  24. 10th annual Fuse Forum, October 8
  25. MFDF webinar - Essential Strategies in Board Oversight of Operational Risk Management, October 14
  26. 2025 MMI Annual Conference, Oct 15-17




©All rights reserved to InvestmentWires, Inc. 1997-2025
14 Wall Street | 20th Floor | New York, NY 10005 | P: 212-331-8968 | F: 212-331-8998
Privacy Policy :: Terms of Use