NU Online News Service, May 9, 10:19 a.m. – Financial advisors and broker dealers are beginning to see 529 college savings plans as an integral part of their investment lineup, says a new study from Financial Research Corp., Boston.
“It’s got to the point where if you want to provide your clients with a total suite of products, it’s as necessary to have a 529 as an IRA,” says Art MacPherson, vice president of FRC and senior writer of its report, “Distribution Strategies for the 529 Market.”
Section 529 of the federal Internal Revenue Code lets each state set up its own college savings program. Investors who live in the state that sponsors a program can often defer state income taxes on contributions. Perhaps more important, consumers who invest in a program sponsored by any state can usually defer federal income taxes on the contributions.
Students can withdraw the assets for tuition and living expenses without paying federal income taxes on the withdrawals.
MacPherson sees the 529 plan as a product that agents can use to broaden their relationships with clients, because it help parents avoid the gift tax while providing college funds for family members.
The plans also have a strong attraction for grandparents, he notes.
“The grandparent market is a big target,” he says. “If you are going to leave cash to your grandchild anyway, this has some advantages over just keeping it in the bank.”
Most states that set up 529 programs hire professional money managers to handle the plans’ assets.
In some cases, the managers are insurance carriers.