FRC: 529 Plans Look Like A Hit

New York state and Mississippi picked the Teachers’ Insurance and Annuity Association-College Retirement Equities Fund, New York, to run their plans. New Mexico hired New York Life Insurance Company, New York, and West Virginia hired Hartford Financial Services Inc., Hartford.

Agents who carry these carriers’ 529 products can sell the 529 products in any state where they are licensed to do business — even outside the states that sponsor the plans.

FRC found five plans where 80% of assets came from out-of-state residents.

In most cases, life insurers get involved in 529s through distribution agreements with designated managers, such as Nevada, whose plan is managed by Strong Financial Corp., Menomonee Falls, Wis., and distributed by American Skandia Investment Services Inc., Shelton, Conn., and other financial firms.

Although only a few banks are now involved in distributing 529 plans, the plans are likely to become a favored product with bank agents and broker/dealers, MacPherson predicts.

Bank of America Corp., Charlotte, N.C., is managing South Carolina’s plan. Banc One Corp., Chicago, is handling Indiana’s plan, and Union Bank and Trust, Lincoln, Neb., is managing Nebraska’s plan.

Although 529 plans look like a sure thing, MacPherson has a word of caution for companies and agencies that sell 529 plans sponsored by one state to residents of another state. Sellers of the out-of-state plans have an obligation to inform investors that they might be able to reduce their state income taxes by investing in in-state plans, MacPherson says.

For example, an agent in California selling a plan to a grandfather living in New York would be obliged to advise the grandfather that New York allows a state tax credit of up to $10,000 for contributions to New York’s own 529 program.

“But you could say, ?Put $10,000 in your state’s plan and put the rest in the plan I’m selling, because it’s a good plan,’” MacPherson says.