Similar to annuities, 529 plans' tax advantages for wealthy families has become one of their key features, much to the chagrin of the Washington politicians who initially backed their development, said Joseph Hurley, president of

"They don't want this to become just a conventional investment that has this tax sheltered wrapper available for wealthy families putting in large sums of money. This is all structured around the premise that these states were going to have targeted investment programs and that this was not going to just become a conventional 401(k) type tax sheltered investment. But now it's starting to look more and more like the 401(k)," Hurley said.

Whether 529's look like 401(k)'s or variable annuities, Congress is trying to rein in the plans, preventing innovations like brokerage options, Hurley said. Nevertheless, since the Sept. 7 notice from the IRS no longer prohibits investors from changing their allocations, 529 plans will begin to look even more like conventional investment vehicles, Hurley said.

"Now that people can actually change their investment allocations through the use of different options, someone can create their own age-based portfolio now," he said.

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