Rapid Growth Seen For 529 Plans

They are a pretty attractive saving tool, he says. There are few places where you can get tax-free growth, and this is one of them.

They also are very useful in estate planning because they allow the client to pass along cash to children and grandchildren tax free, he points out.

Robert J. Kuehl, a certified financial planner with H.C. Denison Co., Sheboygan, Wis., cautions that 529s are almost exclusively marketed to high-net-worth individuals. Someone with $1,000 they collected from a birthday party is not a candidate.

For clients who can benefit, however, the 529 plan has some pretty neat features that arent available with other products, he says. For example, you can prorate gifts over 5 years, so you can get money out of the estate and not pay any gift tax. If the client has 10 grandchildren, he can effectively move perhaps $1 million out of his estate. He also controls the money, which you cant get with other college savings products.

Kuehl is not convinced 529s will achieve the level of expansion projected by FRC, though.

Theyve been hyped to some degree, he says. Theyre a great plan, but I dont see how youd get that high growth.

For one thing, the sunset provision for tax-free distributions still is scheduled to expire in 2010. That adds a degree of uncertainty, Kuehl believes.

Im absolutely not banking my career on 529s, he says. I suppose you could if that were your bailiwick, but I would approach it as a college planning expert, selling other things, as well, such as education savings accounts and custodial accounts. Being strictly a 529 plan guy is just myopic.

Joseph Hurley of Bonadio still encourages advisors to prepare for the likely growth in 529s.

Learn and understand the various aspects, including the many different tax incentives for families, he advises. That helps you to market yourself effectively to families who are confused by all the options.

Reproduced from National Underwriter Edition, May 21, 2004. Copyright 2004 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.