NASD Widens Review of 529 Savings Plans

NASD said Monday that its examination of sales of tax-free college savings plans, known as 529 plans, has grown to involve 20 securities firms.

The regulator is examining plan fees and the disclosures brokerages make to customers to determine whether investors who buy plans offered by states other than their home states are advised of the tax consequences of the purchase.

The regulator, formerly known as the National Assn. of Securities Dealers, said that a high percentage of people who bought 529 plans purchased out-of-state plans and that they might be missing out on tax benefits offered by their home states.

NASD spokesman Herb Perone could not immediately provide the exact percentage of 529 investors with out-of-state plans. But he said it was 90% when fewer brokerages were involved in the NASD inquiry.

In March, NASD said it was investigating at least six firms.

The 529 plans, established in 1997, are sponsored by U.S. states, and each state offers different terms and incentives. For all plans, earnings and distributions from the savings accounts are exempt from federal taxation when the income is used for college costs.

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

The plans have been criticized for high fees, which some critics say outstrip the tax benefits.

The Securities and Exchange Commission also has said it is examining unsuitable sales of 529 plans.

Perone would not identify the firms involved in the NASD examination.