January 11, 2006

VIA FACSIMILE

Representative Richard Lindsey
Chairman
Education, Finance, and Appropriations Committee
Room 514
11 S. Union Street
Montgomery, AL 36130

Re: HB 62 Should Be Amended to Extend Tax-Free Treatment to All 529 Plans

Dear Representative Lindsey:

The Investment Company Institute (the "Institute")¹ supports your efforts to assist Alabama families saving for college. The Institute is the national trade association of the mutual fund industry. Mutual funds are an important savings vehicle for 529 plans.

The Institute is proud of its role in assisting families saving for college. We strongly support efforts that encourage college savings, like HB 62. While we believe that HB 62 is a helpful starting place, we strongly urge you to amend the bill to extend tax free treatment of earnings and amounts used to pay for qualified higher education expenses to all 529 plans. Such a change would fully conform Alabama rules to federal law and provide a much needed incentive for education savings programs.

Spiraling education cost is a significant issue for Alabama families. The federal exclusion for qualifying withdrawals from 529 plans has had a major impact on the growth of these savings vehicles and has encouraged American families to save for their children's college education. Recognizing the impact of federal law on the success of 529 plans, most states already have conformed their state tax treatment of withdrawals to federal law. Alabama currently is one of only three states in the nation that does not conform its treatment of 529 plans to federal law. Federal conformity with respect to qualified withdrawals will make it easier for Alabama families to save for college. In addition, federal conformity will simplify tax compliance for Alabama residents.

We urge you to amend HB 62 to provide tax free treatment for all 529 plans. Please contact me at 202/326-5835 or lrobinson@ici.org if you need additional information.

Sincerely,

Lisa Robinson

1 ICI members include 8,537 open-end investment companies (mutual funds), 669 closed-end investment companies, 157 exchange-traded funds, and five sponsors of unit investment trusts. Mutual fund members of the ICI have total assets of approximately $8.672 trillion (representing 98 percent of all assets of U.S. mutual funds); these funds serve approximately 89.5 million shareholders in more than 52.6 million households.