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Financial Planning > College Planning > 529 Plans

Coming of Age

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Why do Americans of all wealth levels continue to pour money into 529 college savings plans? The answer is simple: the cost of higher education is skyrocketing. More and more advisors are counseling their clients to start shoveling money into 529s now so they won’t be blindsided when it’s time to send their kids to college.

On average, parents can expect to fork out about $40,000 per year to ship Junior off to a private college, says Paul Frichera, director of product management and sales support at MFS Investment Management in Boston. Frichera notes that even state colleges and universities are charging more than $20,000 per year.

It’s no wonder that by the end of the first quarter, parents had invested approximately $40 billion in 529 plans. That’s a 13.9% increase in total assets invested in these plans at year-end 2003, and an 87.5% jump from first-quarter 2003 assets, according to Financial Research Corp. in Boston.

One of the biggest benefits of investing in a 529, Frichera says, is that an investor can “put in a lot of money upfront.” If an investor “really wants to jumpstart a 529,” he says, “they can put in an average $250,000 depending on the plan, and let that grow immediately.” As Investment Advisor’s directory of 529 college savings plans that follows shows, investors in the NJBEST 529 College Savings Plan and the Franklin Templeton 529 College Savings Plan can contribute a whopping $305,000 at one time.

The MFS 529 College Savings Plan, sponsored by Oregon, is distributed nationwide through advisors, but Oregon residents can purchase it directly from the state through vendors. Only two years old, the plan has already pulled in a healthy $150 million in assets. “It’s not one of the large [plans],” Frichera says, “but we have some good momentum behind the product.” MFS’s plan should continue to do well, as it’s the advisor-sold plans that continue to pull in the majority of 529 assets, says Joe Hurley, CEO of

MFS is also the investment manager for the Merrill Lynch NexGen 529 Plan, sponsored by Maine. MFS has “more than $300 million in the [NexGen plan] across a multitude of asset categories,” Frichera says.

Fidelity has seen great success with its advisor-sold plan, Fidelity Advisor 529 Plan, which is sponsored by New Hampshire. Assets in the plan have doubled since last year, says Julie Ravech, director, program management and development at Fidelity Investments in Boston. Ravech says assets in the plan have mushroomed because existing clients are contributing more money and because new clients keep flooding in. More and more investors are becoming aware of 529 plans, Ravech says, because about “80% of [Fidelity] advisors are bringing up college planning as part of the overall financial plan.”

To help advisors get the word out about college planning, Fidelity recently developed a sales kit that walks the advisor through the actual sales process. “Advisors receive a lot of materials [about 529s], and it’s very hard for them to get their arms around” all the information, Ravech says. Fidelity’s sales kit provides step-by-step instructions on selling 529s. For instance, the first step, “getting started,” provides an overview of Fidelity’s 529 plan. Then on to “prospecting,” and a new section dubbed, “The cost of waiting,” which tells advisors to explain the benefits of contributing to a 529 now. Advisors are also given a tutorial on extending their book of business. Advisors are taught “how to identify clients in their book of business who would be open to 529s, and who might be good candidates for rollovers and transfers,” Ravech says.

For now, the 529 market is going like gangbusters. But 529 plans’ growth could get sidelined if President Bush’s Lifetime Savings Accounts (LSAs) and Retirement Savings Accounts (RSAs) become law. Both would offer tax-free withdrawals and annual maximum contribution limits of $5,000. Rep. Sam Johnson (R-Texas) introduced a bill in late June that called for the establishment of RSAs, and LSAs were included in Bush’s 2005 budget. If he’s reelected in November, LSAs will likely be established–if they haven’t already gotten the nod this year.


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