Tax Bill Could Make Selling College Savings Plans Easier

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Legislation passed recently by Congress and expected to be signed by President Bush contains a federal tax exemption for qualified withdrawals from a Section 529 plan, says Joseph Hurley, who maintains a Web site (savingforcollege.com) that tracks that market.

Companies just getting into the 529 market are grateful for the break they anticipate will make their agents job of selling this already attractive product even easier.

“Its perfect timing,” says Paul Johnson, spokesman for American Express Financial Advisors, Minneapolis, which has partnered with Strong Capital Management, Menomonee Falls, Wis., to offer Tomorrows Scholar college savings program.

Although the recently launched program had been in the planning stages well before this new legislation was announced, “the tax bill just makes it even more attractive,” says Johnson.

Section 529 is a college savings program with high contribution limits–typically around $200,000–which grow tax-free and, until the tax exemption becomes law, taxes distributions at the students presumably lower income tax rate.

The legislation would allow distributions used for college expenses, such as tuition, books, and room and board, to be completely tax-free.

About 34 states currently offer the 529. A company that wants to sell the 529 must be sponsored by a state to do so. Wisconsin has sponsored Amex and Strong.

“Its up to the state to determine whether they want to make (the 529) a state plan or a national plan,” says Johnson. “Wisconsins is a national plan.”

Tomorrows Scholar is sold solely through Amexs 10,000 financial advisors across the country; however, Strong is offering its own national 529 plan, Edvest, that can be purchased directly from the company rather than through an agent, says Stephanie Truog, Strong spokeswoman.

The 529 will benefit financial advisors more than brokers/agents because it fits well within the financial planning process, says Roger Hoadley, director of communications for Waddell & Reed Inc., Overland Park, Kan.

Waddell & Reed will offer InvestEd through a partnership with Securities Management & Research, a Houston-based subsidiary of American National Insurance Company, Galveston, Texas. The two companies have been selected by Arizona to be its exclusive providers of 529 investment products and services through the Arizona Family College Savings Program, according to Waddell & Reed. Its plan is also national, with Oct. 1 as W&R’s target start date.

InvestEd will be sold by the 3,000 Waddell & Reed financial advisors across the country, says Hoadley. The advisors are currently learning about the product.

“Its been something theyve wanted to be able to sell for quite some time,” says Hoadley. “This is the perfect plan for people with children that plan to go to college.”

Johnson agrees that financial advisors are in a more auspicious position than brokers or agents regarding the 529. “The key for our advisors is they have a long-term relationship with our clients,” says Johnson.

“In terms of selling [the 529], the advisor who has a relationship with the client is looking at what the clients long- and short-term needs are. [The clients] have goals for their children or grandchildren. [The advisors] want to make sure their clients know about this product and that it fits into their financial plan.”

Manulife Financial, Boston, is also among newcomers to the 529 market. Its plan, Manulife College Savings, sponsored by Alaska, will be available July 2 to residents nationwide, says Wendy Smith, Manulife spokeswoman.

Manulife has partnered with T. Rowe Price, for its relationship with Alaska, to sell the 529 through Manulifes advisors to third parties, says Smith.

“Right now were educating our wholesalers to get them excited about the product, its intricacies, to get the advisors excited about it,” Smith says.

“Weve had some really good feedback from the advisors. It just complements what we sell already, retirement savings and wealth transference. Really the second most pertinent issue that people think about in terms of savings, after retirement planning, is saving for college for their kids, so its a nice fit for us.”

Manulife Vice President Matthew Schiffman says, “The section 529 is a very advantageous way to address some of the flaws inherent in some of the other” college savings vehicles, adding that advisor response to the plan has been “very good.”


Reproduced from National Underwriter Life & Health/Financial Services Edition, June 11, 2001. Copyright 2001 by The National Underwriter Company in the serial publication. All rights reserved.Copyright in this article as an independent work may be held by the author.


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