National limit on contributions
The Treasury very much dislikes the idea that fat cats might open
a 529 in every state, into which they could conceivably sock away
$60,000 (the maximum contribution that can be made once every five
years), or make annual contributions that don't exceed the $12,000
gift tax cap, 50 times over, even though the likelihood of it happening
on any large scale is very, very slim. That said, the Treasury has
little interest in having to develop a program to track account
contributions across the states.
One answer: a national cap on contributions per beneficiary, along the lines of current IRA limits. That way, the wealthy could not shelter more than they ever would likely use for educational expenses.
Industry groups consider a national contribution cap
likely; their hope is that it can be monitored via the existing
tax reporting structure used for IRAs and Coverdell education savings
accounts and not place additional paperwork on the administrators
or brokers. Each 529 program would report the market value of accounts
by account owner and beneficiary to the IRS.
"For those 46 of 50 states that engage private-sector (investment) managers to run their programs, all of these companies that are running those programs have very sophisticated operating systems. They all operate IRAs. They know how to do this. That's why they were able to go into the 529 space in the first place," says Feirstein.
Computer as qualified expenses
The IRS has not voiced a ruling on it yet, but industry groups are urging the agency to include computers as equipment required for enrollment or attendance at college, regardless of whether a particular college or university requires students to have one.
Gannon says the NASD's main focus in 529 plans is
to make sure its member brokers educate clients about the full range
of college savings options (prepaid tuition plans, educational savings
accounts and even savings bonds) as well as the state and federal
tax advantages of each. In this regard, he's looking forward to
more definition in the 529 product.
"The simpler a product is, the easier it is to understand, and the simpler the regulations are around a product, the easier it is to educate people about them," he says.
As far as tax dodging goes, Varley says it's more
a public relations dust-up than an outbreak of actual abuses of
529s. SIA notes that the average 529 account balance in 2003 was
$8,200, and only 2 percent had more than $30,000.
"If you're really wealthy, there are a lot better ways to shelter money than in 529 plans."
Jay MacDonald is a contributing editor based in Texas.
