Notice 2009-01 provides guidance to IRC Section 529
qualified tuition programs and participants in 529 plans regarding the
restriction on investment direction described in section 529(b)(4).
Notice 2009-01 sets forth a special rule under which a program may permit investments in a section 529 account to be changed during 2009 on a more frequent basis than under current rules.
Section 529(b)(4) states that a program shall not be treated as a section 529 qualified tuition program unless it provides that any contributor to, or designated beneficiary under, such program may not directly or indirectly direct the investment of any contributions to the program (or any earnings thereon). The proposed regulations under section 529, which were published in the Federal Register on August 24, 1998 (63 F.R. 45019), provide that a program does not violate this requirement if it permits a person who establishes a section 529 account to select among different investment strategies designed exclusively by the program, only at the time when the initial contribution is made establishing the account. Prop. Treas. Reg. §1.529-2(g).
In response to concerns that have been caused by the recent condition of the financial markets, commentators have requested from the IRS more flexibility in this special rule, specifically the ability to change the investment strategies more frequently. Those commentators expressed concern that the inability to do so may interfere with the preservation of the value of a section 529 account in the face of changes in the markets.
Accordingly, Notice 2009-01 amends the provisions of Notice 2001-55 to further provide that a program does not violate the investment restriction under section 529(b)(4) if it permits a change in the investment strategy selected for a section 529 account twice per calendar year for calendar year 2009, as well as upon a change in the designated beneficiary of the account, subject to the program requirements as detailed in Notice 2001-55. The Treasury Department and the IRS expect that final regulations will incorporate this special rule for 2009.
Notice 2009-01 will be published in IRB 2009-2 dated Jan. 12, 2009.
Posted by Lewis J. Saret, General Editor, Wealth Strategies Journal.
Leave a comment