With South Dakota and Georgia becoming the 49th and 50th states, respectively, to enact legislation to develop 529 college savings plans, the future for anxious parents struggling to fund college tuition has never looked brighter. The problem is, very few people know these plans exist. A survey sponsored by Putnam Investments notes that although parents feel that funds saved for college should be tax-deferred, only one-third are actually taking advantage of any tax-deferred investment. Further, only 7% of respondents use a 529 plan.
So what does this mean to you as an advisor? Plenty. While these plans have been around since 1997, more and more states are opting to hire outside vendors–like Merrill Lynch and Fidelity–to run the plans, hoping to make the 529 a household word. And since these vendors are competing with one another, these 529s will no doubt become better investments for consumers. What’s left is for advisors to help consumers find the 529–or combination of 529s–that’s best for their clients’ particular college funding needs.
Mercury Funds, a unit of Merrill Lynch Investment Managers, recently teamed up with Franklin Templeton Investments to implement and manage Mercury’s GIFT College Investing Plan for Arkansas and Wyoming. Franklin will offer the plan through its national network of distribution agents, including broker/dealers, banks, and insurers. Mike Saliba, Mercury’s 529 business development director, says the partnership “gives us a delivery tool to get the plan
to our clients.” Franklin Templeton benefits by getting a piece of the 529 action without having to go out and sign up a state on its own.
The 529 plans, which are available to anyone in any state regardless of residency, have high contribution caps that vary from state to state. However, investing in a certain state’s plan may hold specific tax benefits depending on the state and the individual’s needs. Federal tax law merely requires that states set reasonable limits based on the amount of money necessary to cover the total cost of higher education for a beneficiary. In general, contri-bution limits are $100,000 per beneficiary for the lifetime of the account. (For a list of which vendors service which states, go to www.savingforcollege.com.) And when clients ask you how on Earth they can possibly foot a tuition bill that for four years at a private institution in 2018 is expected to eclipse $225,000, put 529s at the top of your list of suggestions.–Cort Smith and Josh LeBaron
|Goldman Reaches Out|
| Goldman Sachs, in a sign of its interest in the independent advisor channel, announced that a number of broker/dealers will provide its Prime Access research, products, and execution services to the B/Ds’ advisors. Advest Inc., Dain Rauscher, Mesirow Financial, Raymond James, Robert W. Baird, Scott & Stringfellow, Stephens Inc., Stifel, Nicolaus & Co., Sutro & Col, Tucker Anthony, U.S. Bancorp Piper Jaffray, Wachovia Securities, and William Blair & Co. are all now offering Prime Access.
Prime Access has been available in Europe since September, but has now crossed the Atlantic to supplement the services B/Ds already offer their advisors. According to a Goldman Sachs spokesperson, Prime Access offers trade execution, coverage of more than 1,200 companies in the Americas, general market strategies and economic research, proprietary structured equity products, and specialized services for high-net-worth clients. Among those services are convertibles; derivatives; single-stock risk management products such as collars; and structured products such as principal protected notes.–Marlene Y. Satter
Splitsville for Split Dollars
The IRS changes the rules on some split-dollar arrangements, meaning some clients may have to change their plans
It was fun while it lasted. The Internal Revenue Service issued Notice 2001-10 earlier this year, effectively putting a stop to the benefits of split dollar agreements.
In the private versions of the agreements, a person could fund an irrevocable life insurance trust above the annual $10,000 gift exclusion without suffering any negative estate tax consequences or using his unified credit. This was done by making a no-interest loan each year to the trust for the purpose of the trust paying off the premiums.