The National Association of Securities Dealers has imposed a $500,000 fine on Ameriprise Financial Services Inc. in connection with what the NASD says were problems with 529 college savings plan sales.

The NASD, Washington, which reportedly is gearing up to impose more 529 plan sales fines, says Ameriprise should have done more to make sure that consumers understood the consequences of buying 529 plans sponsored by states other than their home states.

Ameriprise, Minneapolis, is neither admitting nor denying the allegations, but, in addition to agreeing to pay the fine, it will pay about $750,000 to compensate 500 consumers who say they lost important state income tax benefits as a result of confusion about how the 529 plan program works.

The NASD notes the Ameriprise fine is just the first fruit of a 529 plan sales “fact-finding sweep” that it started in 2003.

Section 529 of the Internal Revenue Code encourages states to set up college savings plan programs. Contributions that meet Section 529 requirements are exempt from federal income taxes, and distributions used for a wide variety of educational expenses are also exempt from federal income taxes.

Each state can choose its own 529 plan program structure and investment menu, and each state has a right, but not an obligation, to offer state income tax breaks to residents who invest in its 529 plan program or in other states’ 529 plan programs.

Congress put 529 plans under the jurisdiction of the Municipal Securities Rulemaking Board, but the board relies on the NASD to enforce its rules.

The “NASD has long been concerned that investors understand the differences between the many different 529 plans that are being offered today and choose a plan that is right for them,” NASD Vice Chairman Mary Schapiro says in a statement. “These are complex investments, and individual investors need to consider a number of factors when choosing a 529 plan.”

The NASD says Ameriprise, formerly known as American Express Financial Advisors, sold 529 plans with a total value of $1.1 billion to 138,000 clients between May 2001 and December 2004.

The plans that Ameriprise sold were part of the Wisconsin 529 plan program.

From May 2001 to October 2003, Ameriprise gave sales representatives registered to sell securities no indication that they ought to consider state income tax breaks along with other concerns when deciding whether the Wisconsin program was suitable for specific customers, the NASD says.

Between October 2003 and December 2004, Ameriprise had guidelines that mentioned tax concerns, but the company did not tell registered reps how to include state income tax breaks in assessments of product suitability, the NASD says.

During the period in question, Ameriprise generated about $55 million in 529 plan sales to residents of 5 states who could have received significant state income tax benefits if they had bought plans in their home states, the NASD says.

The NASD says this fine is just the first fruit of a 529 plan sales “fact-finding sweep” that it started in 2003.