College savings plans to lobby for unlimited investment changes

Supporters of 529 plans want tweaks to law that caps fund changes at two per year, which could spur adviser interest in managing them.
JUN 29, 2016
The college savings community is pushing Congress to tweak the 20-year-old legislation that created tax-advantaged 529 plans, to allow for unlimited investment changes. Today account holders can make only two investment adjustments a year to the accounts, which allow investors to accumulate funds that can be tapped for college expenses without owing federal or state taxes on the growth. Some believe the change could make the plans, which today contain about $258 billion, more attractive to financial advisers, because it would provide more justification for charging a management fee on those assets. "For advisers it would be a monumental change," said Paul Curley, director of college plan research for Strategic Insight. "It would make 529s look like all other investments in terms of being able to make changes at any point." Mary Morris, chair of the College Savings Foundation and chief executive of the Virginia529, said she believes investment changes were never meant to be restricted, but that the Treasury Department misinterpreted the legislative language in the proposed rule. "There's no value in restricting people from reallocating within their limited number of investment options," she said. The significance of the change to advisers would depend on how they charge clients. Financial adviser Carolyn McClanahan said it wouldn't actually matter to her firm, Life Planning Partners, which charges a flat annual fee to clients. She also wonders why anyone would need to make "bunches of changes" to investments in the plans. The proposal is part of the legislative agenda the College Savings Foundation will push this year and in future years, as explained at the foundation's annual conference in Ocean Beach, Fla., Wednesday and Thursday. (More: 529 plan tricks and traps) The foundation also wants to encourage more employers to be involved in helping families save for college in 529s, and allow money saved in 529 plans to be rolled over to tax-advantaged retirement accounts after a certain number of years, Ms. Morris said. Allowing rollovers would eliminate the argument of parents who don't want to invest with the plans because they worry their children won't attend college, or that they will put too much into the plans and have to pay a 10% penalty on the balance when taking it out, as well as pay taxes on investment gains. The 529 legislation that created the college savings plans in 1996 has gone through a series of changes, most recently at the end of 2015 when computers were permanently added as a qualified college expense, and tuition refunds were allowed to be returned to the accounts. The number of investment changes allowed was adjusted to two from one at the end of 2014, which is also when 529 ABLE accounts were created to provide for tax-advantaged savings accounts for young disabled family members.

Latest News

SEC bars ex-broker who sold clients phony private equity fund
SEC bars ex-broker who sold clients phony private equity fund

Rajesh Markan earlier this year pleaded guilty to one count of criminal fraud related to his sale of fake investments to 10 clients totaling $2.9 million.

The key to attracting and retaining the next generation of advisors? Client-focused training
The key to attracting and retaining the next generation of advisors? Client-focused training

From building trust to steering through emotions and responding to client challenges, new advisors need human skills to shape the future of the advice industry.

Chuck Roberts, ex-star at Stifel, barred from the securities industry
Chuck Roberts, ex-star at Stifel, barred from the securities industry

"The outcome is correct, but it's disappointing that FINRA had ample opportunity to investigate the merits of clients' allegations in these claims, including the testimony in the three investor arbitrations with hearings," Jeff Erez, a plaintiff's attorney representing a large portion of the Stifel clients, said.

SEC to weigh ‘innovation exception’ tied to crypto, Atkins says
SEC to weigh ‘innovation exception’ tied to crypto, Atkins says

Chair also praised the passage of stablecoin legislation this week.

Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest
Brooklyn-based Maridea snaps up former LPL affiliate to expand in the Midwest

Maridea Wealth Management's deal in Chicago, Illinois is its first after securing a strategic investment in April.

SPONSORED How advisors can build for high-net-worth complexity

Orion's Tom Wilson on delivering coordinated, high-touch service in a world where returns alone no longer set you apart.

SPONSORED RILAs bring stability, growth during volatile markets

Barely a decade old, registered index-linked annuities have quickly surged in popularity, thanks to their unique blend of protection and growth potential—an appealing option for investors looking to chart a steadier course through today's choppy market waters, says Myles Lambert, Brighthouse Financial.