Institute Comments on IRS Section 529 Program Guidance, December 2001

Washington, DC, December 21, 2001 - The Institute recently submitted a comment letter to the Internal Revenue Service regarding Notice 2001-55, which sets forth guidance on the investment direction restrictions of Code Section 529. The letter makes three key suggestions.

First, the letter urges the IRS to clarify, through a safe harbor, that an investment company that meets the regulated investment company qualification requirements under Subchapter M of the Internal Revenue Code is a "broad-based investment strategy."
Second, the letter asks the IRS to clarify that the phrase "designed exclusively by the program" is to be interpreted by providing deference to states in their determination of investment strategies made available under their 529 programs. In this regard, the letter requests confirmation that a preexisting investment vehicle determined by the state to be an appropriate investment strategy for its 529 program may be offered as such, so long as it meets other relevant requirements.
Third, the letter seeks clarification regarding when, if at all, accounts must be aggregated in determining whether the once-per-calendar-year investment change limit has been reached.