A large inflow of money into 529 college-savings plan is a potential sign that Congress will act soon to make permanent the tax advantages that these vehicles enjoy, according to The Wall Street Journal.
At the end of last year, assets in 529s swelled to $52.3 billion, a 50% increase from a year earlier, according to the nonprofit College Savings Foundation. While stock market gains were partly responsible for the huge inflow, the bulk of the money came from parents eager to take advantage of a college savings vehicle, whose tax-free status is set to expire on Dec. 31, 2010.
Now, college-funding experts see the surge in 529 assets and the Bush Administration's plan to make certain tax cuts permanent as a sure-shot sign that 529s will increase even more in popularity.
The 529 plans are offered on a state-by-state basis and allow parents to save and withdraw contributions tax free if the money is used for so-called qualified educational expenses. But advocates of Coverdell Education Savings Accounts and similar accounts are concerned that parents who withdraw after the tax-free status expires may have to foot enormous tax bills.
"There's a growing recognition that to tax the gains needed to keep up with college-cost inflation would put families further and further behind," says Joe Hurley, chief executive officer and founder of Savingforcollege.com, which tracks 529 plans.
The failure to get rid of the sunset provision taxing parents who withdraw after December 2010 would significantly handicap the flow of assets into 529 plans. For instance, Bruce Harrington, a vice president at MFS, a Boston mutual fund company, estimates if the sunset provision faded, total assets in the plans would increase by as much as 20%.