Section 529 plans, a major college funding and estate planning tool for boomers and their parents, are poised for rapid growth, says a new study.
Assets in these tax-advantaged vehicles for financing higher education will grow from just over $35 billion at the end of 2003 to $300 billion by 2010, predicts the study, released by the Financial Research Corporation, Boston.
That growth will go hand in hand with big changes for vendors and financial advisors that sell Section 529 plans, FRC says in its report, 529 Strategies for Success: Graduating From Start-Up Mode to Profitable Asset Growth.
The industry will experience a radical transformation as investment companies realign their business strategies to satisfy the interests of college savers looking to meet the rapidly escalating costs of higher education, says Whitney Dow, FRC director of education savings research.
Many financial advisors say growing concerns by parents and grandparents about education costs will make 529 plans increasingly important. Their tax advantages also have significant implications for estate planning, they agree.
529 plans offer federal income tax-deferred growth, tax-free withdrawals for qualified expenses, and estate and gift tax exclusions, as well as additional tax advantages in many states.
FRC predicts legislators will move to extend the tax-free status of 529 withdrawals for qualified expenses beyond the current sunset date of 2010.
Joseph F. Hurley, senior partner of Bonadio & Co. LLP, Pittsford, N.Y., agrees Congress may extend the tax breaks. He thinks FRCs projection of eightfold growth for 529 plans is realistic, with one proviso: If all of a sudden the lifetime saving account comes into being, we can see a significant negative impact on growth projections.
Bard Mulovaney, a financial planner with Financial Council Inc., Annandale, Va., also expects 529 plans to continue to grow.