College Savings Foundation Created To Promote 529 Plans

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Financial services companies have organized a not-for-profit corporation, the College Savings Foundation, Washington, to build public awareness for 529 plans and give the plans public policy support.

Founding members of the foundation include AIM Investments, Toronto; Fidelity Investments, Boston; Franklin Templeton, Toronto; Manulife Financial Corp., Toronto; Merrill Lynch, New York; Morgan Stanley, New York; Strong Financial, Menomonee Falls, Wis.; and T. Rowe Price, Baltimore.

Section 529 of the Internal Revenue Code exempts plan contributions and earnings from federal income taxes. The section also exempts distributions from federal income taxes when the beneficiaries use the distributions to cover qualified college costs.

The 529 college savings plans and their siblings, the 529 prepaid tuition programs, manage about $28 billion in assets, according to Financial Research Corp., Boston. The college savings plans alone ended 2002 managing $19 billion in assets, 108% more than they managed at the end of 2001. College savers contributed more than $10 billion to the plans, FRC estimates.

Many states now participating in the 529 plan program offer tax breaks similar to the federal tax breaks.

The College Savings Foundations goals include the promotion, protection and enhancement of 529 plans. The foundation wants to build a database that will include analysis and background information on all aspects of 529 plans, including prepaid tuition plans and other programs designed to help finance college tuition.

Eric Nottonson, co-founder of the foundation and vice president of college planning at Fidelity, says the group will serve as a voice for all program providers and managers, including insurers.

Although the foundation is still in its formative stages and does not yet have a legislative arm, one of the issues it will track is the permanence of the federal tax-free status of qualified 529 plan distributions. The concern is that the tax-free status might eventually expire.

“We think it will be the best thing for families to have the uncertainty removed,” Nottonson says.

Getting all states to offer the same tax breaks will be another priority, he says.

Charles Toth, director of education savings at Merrill Lynch, one of the leaders in the creation of the industry foundation, says the birth of the foundation “signals the maturity of 529 plan development.”

Toth will be the chair of the new foundations board and Nottonson will be the vice chair. Sarah Henriksen of Strong Financial will be the treasurer, and Bill Raynor of AIM Investments will be the secretary.


Reproduced from National Underwriter Edition, March 3, 2003. Copyright 2003 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.