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June 10, 2001 at 08:00 PM
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.
