The college savings plan industry once again has unveiled a wide array of marketing campaigns for the back-to-school season, with many plans emphasizing the benefits of 529 plans in light of upcoming changes in the “kiddie tax.”
The tax, which determines the treatment of a child’s capital gains, dividends and interest, was designed to discourage wealthy families from putting assets in a child’s name to minimize taxation. Under the tax, the first $850 of a child’s earnings is tax-free and the next $850 is taxed at the child’s rate (usually 5% to 10%); anything beyond that is taxed at the parent’s rate.
The rates originally applied to children under age 14 and later were extended to those under 18. As a result of a law passed this summer, the kiddie tax will apply to those under 19 or full-time students under 24 who don’t earn enough to pay for half their support. The new provisions take effect in January.
“As a result of the new law, it’s even less of a good idea to put money in a child’s name for college,” said Diana Scott, a senior vice president at Boston-based John Hancock Financial Services Inc. and general manager of its college savings division. “We want to remind advisers that it makes [Section] 529 plans, which are a parental asset, much more viable for their clients.”
To attract adviser interest in its programs, Boston-based John Hancock College Savings’ back-to-school campaign features a lunch box filled with goodies such as multicolored pens, a flashlight keychain and a rubber ball — all designed to “re-engage advisers,” Ms. Scott said.
Publicizing the “kiddie tax” is a smart marketing move, said industry consultant Andrea Feirstein, managing member of New York-based AKF Consulting LLC, because “it makes it that much clearer that a 529 is the most tax-advantaged vehicle. It’s one more weapon in an adviser’s arsenal.”
Other 529 program managers, including Jeff Coghan, director of SMART529 programs for The Hartford [Conn.] Financial Services Group Inc., agree. But some state officials who market directly to consumers have not highlighted the “kiddie tax.”
“We don’t want to confuse the issue,” said Diana Cantor, Richmond-based executive director of the Virginia College Savings Plan, the nation’s largest 529 program with about $25 billion in assets. “We don’t think most of our families are paying the tax, and we want to keep our marketing simpler.”
Both program managers and state officials agree that 529 marketing campaigns need to continue to stress general awareness of the programs to the public, despite the boost the industry received last year, when passage of the Pension Protection Act made 529 tax breaks permanent.
“You can’t take anything for granted,” said Raquel “Rocky” Granahan, vice president and director of college savings programs at New York-based OppenheimerFunds Inc., which will be running 529-plan seminars for advisers this fall.
The need for continued awareness is underscored in a survey being released by The Hartford this week, which shows that although nearly three-quarters of all parents are saving money for college, 70% are not using a 529 savings plan.
The college savings programs, according to the survey, “still seem to be a well-kept secret.”
If this fall’s campaigns are any indication, however, it won’t be for lack of effort on the industry’s part.
The Hartford will kick off its “Save Smarter” back-to-school campaign on Wednesday with a web seminar for advisers that will focus on recent legislation affecting college savings.
New York-based TIAA-CREF is co-sponsoring contests in Michigan and Oklahoma to raise awareness for its 529 plans in those states. The financial services company will distribute a brochure promoting the Michigan 529 Challenge to every elementary school student in the state.
The company will award one year of free tuition to the contest winner.
In Oklahoma, TIAA-CREF partnered with local colleges to offer tickets to Oklahoma college football games to winners of its VIP Fan Experience sweepstakes.
State 529 officials also have embarked on creative grass-roots campaigns. Baltimore-based College Savings Plans of Maryland is being promoted at minor league baseball games, county fairs and local events, such as the “Taste of Baltimore” next week in Camden Yards. And brochures and presentations will be made on back-to-school nights throughout the states. “It’s the one day you can get most of the parents,” said Joan Marshall, executive director of the program.
Colorado’s Denver-based CollegeInvest program also has seminars, presentations and informational tables at back-to-school nights and parent-teacher conferences, as well as promotions at the Colorado State Fair, said the plans’ chief marketing officer, Jennifer Robinson. In addition, she said, CollegeInvest is sponsoring a $50,000 Grandparents Scholarship Contest, which awards 10 $5,000 college savings accounts to students whose grandparents write essays about the benefits of a college education.
About 1.5 million brochures promoting the Virginia College Savings Plan will be distributed in Virginia public schools, Ms. Cantor said.
The state also is looking at strategically partnering in future marketing campaigns with “stakeholders in the funding equation,” such as loan providers, she said.