MSRB Seeks to Increase Investors’ Awareness of 529 Plan Tax Implications

Washington, DC, May 20, 2005 - A recent Municipal Securities Rulemaking Board (MSRB) proposal aims to ensure that brokers recommend the best 529 college savings plans to investors by requiring disclosure to brokerage customers of the potential loss of state tax benefits that may result from investing in an out-of-state 529 plan.

Background
Since 2002, MSRB has proposed a number of regulations that seek to enhance oversight of the 529 college savings plan market and provide important disclosures to investors in those types of plans. In addition to requiring brokers to disclose information about tax benefits, MSRB’s most recent proposal would require a “specialized suitability analysis” that takes state tax benefits into account when recommending out-of-state 529 plans to investors.

The 529 college savings plan market has grown exponentially in recent years. Assets in 529 college savings plans grew from $2.6 billion at the end of 2000 to $52.2 billion at the end of 2004. At the same time, regulatory and Congressional oversight of the 529 plan market has also increased. In 2004 the House of Representatives held several hearings focusing on 529 plan issues and SEC Chairman William Donaldson created the Task Force on College Savings Plans, which has been charged with closely reviewing issues raised by the structure and sale of college savings plans.

ICI Position
Institute research reveals that saving for education is one of the primary financial goals of mutual fund shareholders. Earlier this year, ICI expressed support for MSRB’s efforts to improve disclosure in the 529 plan market in order to help investors make informed investment decisions. In the past, the Institute has also expressed strong support for measures to conform individual states' tax treatment of 529 plan withdrawals to federal tax treatment, legislation that would make permanent the tax-free treatment of qualified withdrawals from Section 529 college savings plans, and proposals that would permit the offer and sale of 529 plan securities through employer payroll deduction programs.

Related Links
Additional information about the benefits of saving for education, including an online brochure that helps individuals better understand how state-sponsored 529 plans are helping millions of Americans save for higher education, is available on this website.