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Consider this 529 college-savings niche
http://www.savingforcollege.com/articles/consider-this-529-college-savings-niche-674

Posted: 2014-09-18

by Joseph Hurley

Financial Professional Content

Did you know that 501(c)(3) charitable organizations can open accounts in a 529 plan? Not many people do. Yet this possibility presents an intriguing opportunity, not just for charities, but also for the forward-thinking financial advisor looking to carve out a niche market.

One way to demonstrate the potential is with these examples:

A local 501(c)(3) service organization awards partial college scholarships each year to graduating high school seniors. The money for these scholarships comes out of the organizationís general fund held at a bank. A financial advisor, Cynthia, suggests to the organization that it set up an account with a 529 plan to build a pool of funds that can be invested and professionally managed without the effort and fiduciary risk associated with a separately managed account, and from which future scholarships can be paid. A fundraising campaign succeeds in raising $50,000 for this effort. The scholarship program is expanded to the satisfaction of everyone.

Cynthia then approaches an arts organization operating with a multi-million dollar endowment. She suggests the organization add a brand new program that would provide college scholarships to selected arts students. Rather than relying on the current endowment, an account in a 529 plan is established that provides added diversification and lower investment costs. The organization seeds the 529 account with a transfer of funds from its endowment and embarks on a targeted fundraising campaign that raises several hundred thousand dollars.

For her next effort, Cynthia reaches out to a known philanthropist and describes an idea for an ambitious program to help hundreds of disadvantaged inner-city youth attain a college degree. The philanthropist agrees to match 100% of contributions from other donors into a 529 account owned by a large community-service organization, so that the promise of a fully-paid college education can be extended to all eligible sixth graders in the city. The effort receives the enthusiastic support of the media and government officials, including the state treasurer in charge of the stateís 529 plan. Ten million dollars is raised in the first year alone.

Because a 501(c)(3) is not required to name a beneficiary to a 529 account, all funds held by the charity can be accumulated in a single account. Beneficiaries are named in the future as scholarship recipients are chosen and distributions are made.

Note that for a 501(c)(3) charitable organization, a 529 plan is an investment and administrative vehicle, not a tax-saving vehicle. That is because investment earnings are already exempt from income tax.

As an alternative to a separately managed account, a 529 plan may be preferred for the quality of its investments, for its low level of management fees, and for the extra layer of due diligence provided by the sponsoring state. The 529 plan may even wish to support the initiative by joining any fundraising efforts, and by providing extra administrative assistance when it comes time to make distributions in the form of scholarships.

To my knowledge the idea is relatively untested but I hope to see more activity with charitable 529 accounts in the future.

Financial Professional Content

Did you know that 501(c)(3) charitable organizations can open accounts in a 529 plan? Not many people do. Yet this possibility presents an intriguing opportunity, not just for charities, but also for the forward-thinking financial advisor looking to carve out a niche market.

One way to demonstrate the potential is with these examples:

A local 501(c)(3) service organization awards partial college scholarships each year to graduating high school seniors. The money for these scholarships comes out of the organizationís general fund held at a bank. A financial advisor, Cynthia, suggests to the organization that it set up an account with a 529 plan to build a pool of funds that can be invested and professionally managed without the effort and fiduciary risk associated with a separately managed account, and from which future scholarships can be paid. A fundraising campaign succeeds in raising $50,000 for this effort. The scholarship program is expanded to the satisfaction of everyone.

Cynthia then approaches an arts organization operating with a multi-million dollar endowment. She suggests the organization add a brand new program that would provide college scholarships to selected arts students. Rather than relying on the current endowment, an account in a 529 plan is established that provides added diversification and lower investment costs. The organization seeds the 529 account with a transfer of funds from its endowment and embarks on a targeted fundraising campaign that raises several hundred thousand dollars.

For her next effort, Cynthia reaches out to a known philanthropist and describes an idea for an ambitious program to help hundreds of disadvantaged inner-city youth attain a college degree. The philanthropist agrees to match 100% of contributions from other donors into a 529 account owned by a large community-service organization, so that the promise of a fully-paid college education can be extended to all eligible sixth graders in the city. The effort receives the enthusiastic support of the media and government officials, including the state treasurer in charge of the stateís 529 plan. Ten million dollars is raised in the first year alone.

Because a 501(c)(3) is not required to name a beneficiary to a 529 account, all funds held by the charity can be accumulated in a single account. Beneficiaries are named in the future as scholarship recipients are chosen and distributions are made.

Note that for a 501(c)(3) charitable organization, a 529 plan is an investment and administrative vehicle, not a tax-saving vehicle. That is because investment earnings are already exempt from income tax.

As an alternative to a separately managed account, a 529 plan may be preferred for the quality of its investments, for its low level of management fees, and for the extra layer of due diligence provided by the sponsoring state. The 529 plan may even wish to support the initiative by joining any fundraising efforts, and by providing extra administrative assistance when it comes time to make distributions in the form of scholarships.

To my knowledge the idea is relatively untested but I hope to see more activity with charitable 529 accounts in the future.

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