ICI, SIFMA Comment on Proposed 529 Plan Regulation

Washington, DC, June 12, 2007 - The Institute and the Securities Industry and Financial Markets Association submitted a letter to the U.S. Treasury Department regarding concerns that Section 529 college education savings plans may be used in certain situations for non-college-savings purposes, and concerning industry requests for guidance that clarifies and enhances the use of 529 plans for college savings.


Current account balance statistics on Section 529 plans suggest that the vast majority account owners are saving for college through these plans. As of December 31, 2006, the average account balance in 529 plans was $12,500, well below the cost of a college education (and even further below the contribution limits of any state program).

ICI Position

In a June 12 comment letter, the two associations note that any proposal addressing concerns regarding the potential misuse of 529 plans should be administrable and not discourage the Congressionally-envisioned use of these plans for enhancing college savings and expanding opportunities for a college education. The letter notes that certain proposals included in the FY 2007 President’s Budget (e.g., excise taxes or additional penalties on nonqualified distributions) would do far more to discourage appropriate saving through 529 plans than to prevent potential abuses.

If it is determined that new rules are needed, ICI and SIFMA suggest that some or all should apply only to accounts established after the effective date of such changes. The two associations also urge Treasury to consider differences between savings plans and prepaid plans when drafting proposed regulations.

The SIFMA-ICI letter also encourages the Treasury Department to continue issuing guidance that expands and encourages the use of 529 plans for college savings. For example, it expresses support for guidance that would permitting more frequent changes in investment strategy, noting that allowing more frequent investment changes may help 529 plan investors take advantage of new investment offerings as they become available, rebalance their accounts to maintain a desired asset allocation or react to other types of changes in the market or personal circumstances.

The letter also provides specific comments on a number of related topics:

  • limitations on account owner and beneficiary changes;
  • treatment of contributions from non-account owners;
  • rollover requirements;
  • account contributions caps;
  • IRS reporting;
  • issuance of  Form 1099-Q;
  • distribution aggregations;
  • inclusion of computers as a “qualified higher education expenses”; and
  • responsibility of 529 plan administrators to obtain account owner and beneficiary Social Security numbers.