New IRS Rule Opens Up 529 Plan Investment Choices

September 14, 2001( - Under a new rule, the Internal Revenue Service now allows 529 plan participants to change investments in their accounts annually and when a change in the account of a designated beneficiary occurs.

The plans allow consumers to “lock in” and prepay tuition costs, or invest to pay for young children’s college bills and expenses. Section 529 refers to the part of the Internal Revenue Code that established these programs in 1996.

Notice 2001-55, which outlines the rule, notes that the IRS and the Treasury “recognize that there are a number of situations that might warrant a change in the investment strategy with respect to a 529 account.”

To qualify under this special rule, a program must:

  • allow participants to select only from broad-based investment strategies designed exclusively by the program, and
  • establish procedures and maintain appropriate records to prevent a change in investment options from occurring more frequently than once per year or upon a change in the designated beneficiary of the account

The IRS invites comments on the new notice, as well as any other comments relating to 529 plans by December 24, 2001. Comments may be submitted electronically via the Internet by selecting the “Tax Regs” option on the IRS Home Page, or by submitting comments directly to the IRS Internet site at .

The notice is posted at