Section 529 college savings plans have been slow to endear themselves to insurance agents and brokers.
When the Internal Revenue Service issued Section 529 of the Internal Revenue Code back in 1996, it included many provisions that could make 529 plans good deals for agents clients.
But some states, including New York, refuse to allow agents to collect commissions.
What Your Peers Are Reading
Some investment companies that manage 529 programs shut out brokers, even in states where the rules permit vendors to pay commissions.
A case in point is Teachers Insurance and Annuity Association-College Retirement Equities Fund, New York, which manages 529 programs for several states. TIAA-CREF doesnt currently sell the 529 through agents.
“Some of our products are available through brokers, but our history has been as a direct-marketer,” says Patrick Connor, a TIAA-CREF spokesman. “That doesnt mean we will never have a 529 product that will be sold through a broker.”
In fact, forecasters are predicting that at least eight investment companies will be offering 529 plans through brokers by year-end, says Christopher Stack, managing consultant at an affiliate of Savingforcollege.com L.L.C., Rochester, N.Y., that trains financial advisors.
Manulife Financial, Waddell & Reed, and American Express Financial Advisors have either launched plans recently or will do so soon. (See NU, June 11.)
Tax savings and other benefits make the 529 plans attractive to multiple generations of clients, Stack adds.
Among the benefits are high contribution limits (over $200,000 in many states); tax-deferred growth; and, after Jan. 1, 2002, tax-free qualified distributions, when distributions are used for college expenses, such as tuition, room and board, and books.
For the remainder of this year, qualified distributions will continue to be taxed at the students income tax rate.
Once a state hires an investment company to manage its 529 assets, the vendor can set up its own version of a 529 plan and offer it nationally. About 35 states are currently sponsoring a 529 program.
Among the vendors offering 529 plans through brokers, Stack says, are Alliance Capital, New York; Putnam Investments, Boston; Union Bank and Trust Company of Nebraska, Lincoln, Neb.; Salomon Smith Barney, New York; and Merrill Lynch, New York.
Dreyfus Corp., New York, is expected to enter the 529 market and begin selling plans through brokers sometime in the next six months, Stack says.
“Agents are going to have a broader choice as the year progresses from different products, and they should look at those other options,” Stack says. “Were seeing 529s marketed much the way mutual funds are marketed. An individual can go through their agent, who gets paid for her advice through a commission.”