NASD Examines Disclosure in 529 Plan Sales

Reuters reported Monday that as many as 20 securities firms are under examination by the National Association of Securities Dealers (NASD) for possible fee and disclosure issues involved with the sale of popular “529 plans.”

The 529s, established in 1997, are tax-free college savings plans that are run by the states and allow for earnings that are not subject to federal income tax when the earnings are used to pay for college. The plans have been criticized for high fees, which some have said offset any real tax savings.

Assets in 529 plans climbed to $43 billion at the end of the second quarter of this year, according to data from the Financial Research Corp, reported by Reuters.

At issue are the situations when investors buy into plans other than those offered by their home states. The regulator is looking into whether or not securities dealers disclose that investors may be missing out on some home-state tax advantages by buying into out-of-state plans.

In March, NASD announced that it was it was investigating at least six firms, a number that was expanded this week.

Herb Perone, a spokesman for the regulator formerly known as the National Association of Securities Dealers, told Reuters that he could not immediately provide the exact percentage of 529 investors with out-of-state plans. But he said it was 90 percent when fewer brokerages were involved in the NASD examination.

Perone would not disclose the names of the firms being examined by NASD, Reuters reported.

The Securities and Exchange Commission is also looking into 529 sales, Reuters reported.

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