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529 Assets Surge, But Advisors Say The Plans Arent For Everyone

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Assets invested in 529 college savings plans continue to surge, but many advisors caution they are not always appropriate for boomers.

The College Savings Foundation in Washington reported recently that total assets in 529 plans jumped nearly 88% in the first quarter of 2004 over the same period the year earlier, to an estimated $40 billion from about $21 billion.

The foundation estimates net new contributions to 529 plans during the first quarter totaled more than $4 billion.

These state-sponsored plans exempt taxpayers from federal income taxes on either contributions or education-related distributions from the plans. Often, the plans are also exempt from state taxation.

Robert Cusick, an advisor with Investment Insight Ltd., Cortlandt, N.Y., thinks the figures show theres clearly an increase in awareness of 529 plans.

More and more, he says, clients are coming to him and specifically asking about the 529 programs.

“Advisors are becoming aware that its relatively easy to sell, because the 529 ties in to one of clients top 2 or 3 financial goals,” Cusick says.

But often, theres a direct conflict between saving for college and retirement goals, he observes.

“Parents have one of two problems and can choose which one they are going to face,” Cusick says. “Theyre definitely going to be at a disadvantage in achieving at least one of those goals.”

Boomers who are coming to advisors at this late stage in planning have few choices, according to Cusick.

“They can tap home equity or access low cost loans in todays relatively low interest rate environment, but they cant make money grow on trees,” he says. “Theyre going to have to compromise other objectives.”

Suitability is a key issue for advisors in recommending 529 plans, he adds.

Suitability “inevitably comes up, so we continue to use [the 529] in a judicious manner,” he says. “Advisors need to make sure they do the right thing for the client and not for themselves. If we keep selling people 2.5% fee products because its great for the firm, thats bad for the client.”

Robert J. Kuehl, a certified financial planner with H. C. Denison Co., Sheboygan, Wis., says he is “neutral on 529 plans except in specific cases. I dont think for the average client they are the most practical or prudent approach. They are best for high net worth individuals.”

Reproduced from National Underwriter Edition, June 25, 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.


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