In a new Notice, 2009-01, 2009-2 IRB, IRS says that for calendar year 2009 only, 529 plans may permit two changes in investment strategy, as well as upon a change in the designated beneficiary of an account. This new flexibility was prompted by concerns from 529 plan sponsors that in today’s market environment the lack of flexibility in switching investments could imperil many 529 accounts.
A person can make nondeductible cash contributions to a Code Sec. 529 plan (known colloquially as a 529 plan) on behalf of a designated beneficiary to pay for qualified higher education expenses. The earnings on the contributions build up tax-free and distributions from a 529 plan are excludable to the extent used to pay for qualified higher education expenses. A 529 plan is a tax-exempt program established and maintained by a state (including a state agency or instrumentality), or one or more eligible educational institutions (including private ones).
529 plans have proved to be an extremely popular way to save for college costs. The College Savings Plan Network estimates that accounts in these plans represent savings of over $120 billion in more than 11 million accounts nationwide.
