Jen10122
03-19-2004, 04:21 PM
NEW YORK (March 19) - At least six major brokerage houses may have exposed investors to unnecessary state taxes by selling them so-called 529 college savings funds from states where they were not residents, according to the National Association of Securities Dealers.
Since last summer, the NASD has been looking into complaints from investors that they were not sold 529 plans from their own state of residence, which would have shielded them from state income tax exposure. According to NASD vice chairwoman Mary Schapiro, the six firms with the most complaints were targeted for an investigation, which found that 90 percent of the dollars going into 529 plans at those firms went to out-of-state plans.
''It's not per se a violation to recommend an out-of-state plan, since it may have a stronger history of performance or lower fees than the in-state plan, but it's a pretty big hurdle to overcome that tax deductability feature,'' Schapiro said. ''We're concerned that the appropriate analysis was not done.''
Schapiro, who refused to identify the six firms investigated, said the NASD would expand its probe to determine the suitability of the out-of-state plans in each individual case, and would also begin looking at other brokerage houses.
''With respect to the six plans we've looked at, this was quite widespread,'' she said. ''We need to find out just how widespread this is throughout the industry.''
The plans, named for the pertinent section of the federal Internal Revenue Code, are created by states or educational institutions to allow families to save for college without having to pay federal income tax. State plans include savings on state income tax as well. The plans are operated like a mutual fund, with different plans offering different returns and fee structures.
AP-NY-03-19-04 1257EST
Since last summer, the NASD has been looking into complaints from investors that they were not sold 529 plans from their own state of residence, which would have shielded them from state income tax exposure. According to NASD vice chairwoman Mary Schapiro, the six firms with the most complaints were targeted for an investigation, which found that 90 percent of the dollars going into 529 plans at those firms went to out-of-state plans.
''It's not per se a violation to recommend an out-of-state plan, since it may have a stronger history of performance or lower fees than the in-state plan, but it's a pretty big hurdle to overcome that tax deductability feature,'' Schapiro said. ''We're concerned that the appropriate analysis was not done.''
Schapiro, who refused to identify the six firms investigated, said the NASD would expand its probe to determine the suitability of the out-of-state plans in each individual case, and would also begin looking at other brokerage houses.
''With respect to the six plans we've looked at, this was quite widespread,'' she said. ''We need to find out just how widespread this is throughout the industry.''
The plans, named for the pertinent section of the federal Internal Revenue Code, are created by states or educational institutions to allow families to save for college without having to pay federal income tax. State plans include savings on state income tax as well. The plans are operated like a mutual fund, with different plans offering different returns and fee structures.
AP-NY-03-19-04 1257EST