Ask a roomful of advisors what they think about 529 college savings plans and you’ll get a roomful of answers. That’s why about 25 of them converged in New York for the first day of a one-and-a-half-day workshop, called 529 Boot Camp, held by 529 guru Joe Hurley, in New York.
Named after a section in the tax code, 529 plans let consumers save money for college tuition by investing in a pool of mutual funds. Hurley’s company, Savingforcollege.com, holds the workshops regularly so professionals can get an intensive crash course in the workings of these state-sponsored plans.
At the same time, however, advisors’ take on the pros and cons of these plans, as well as their major concerns, were all over the map. Take Matt Walter, a financial advisor with Lenox Advisors in New York. His major concern focused on the plan’s sunset provisions. While the original law allowed contributions to grow tax-deferred, a more-recent change also made qualified distributions free from federal taxes, clearly a highly attractive reason to invest in them.
But, that provision is set to expire in the year 2010, unless Congress votes to continue it. Walter, for his part, is betting that, even if the provision is allowed to expire, the plans’ tax-deferred status will continue. Still, with a wealthy client base comprised largely of what he calls “Wall Street clients”, many of whom use 529s as part of an estate-planning process, an end to tax-free distributions would be “a major factor to consider,” he says.
Walter regards the plans as a vehicle to supplement regular accounts, not as a big moneymaker. But for Gail Meehl with Sigma Financial in Ann Arbor, Mich., 529s are “a door opener”—something that leads to more business down the line. She, for example, conducts regular seminars about the plans at community colleges. The attendees tend to be 30- to 40-year-old parents with lots of other financial needs, from 401k rollovers to life insurance questions, and she often gets some of that business after they hear her talk.
At the same time, Margreta Swanson of MH Swanson & Assoc. in Charlottesville, Va., has found 529 plans to be a gold mine, ever since she started offering Virginia’s American Funds plan a year-and-a-half ago. Her business has increased 15 percent in the past year, she says, and 10 percent of that has come from 529 plans.
The main point of agreement? That, with more than 80 plans in existence in virtually every state, and a wide range of fees, 529s are confusing, both for advisors and clients, posing both an opportunity and a problem. It’s a boon because confused clients feel they need the counsel of an advisor more than ever. “When they look at the details, they realize they need you,” says Meehl. At the same time, however, that confusion may scare some clients away.
In fact, clients aren’t the only ones put off by the confusing landscape. Some advisors also wonder whether it’s worth the effort it takes to understand all the options, and stay current. Keith Snyder, who is starting a New York office for a firm called Personal Financial Management, based in Redding, Pa., attended the workshop because his firm is making a push in the college-planning area and, in order to make recommendations to clients, “it requires a great deal of study,” he says. But, he wonders whether that would require assigning someone full-time to the 529 plan arena, and whether it’s a cost-effective investment for the firm’s time.
One financial advisor with a major mutual fund company, who asked not to use his name, also pointed to a potential fatal flaw. Many clients, especially those with young children, he says, haven’t bought 529s because they don’t want to be locked into an investment for that long. But, those are exactly the people who might be the most likely consumers of 529 plans. That’s one reason why, he says, only 8 percent of people saving for college have invested in the plans. The only answer: More of an effort by advisors to educate their clients about the tax benefits—and, perhaps, to attend more boot camps.
