By SANDRA BLOCK
USA Today
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Opening a 529 college savings account requires a leap of faith. You trust you'll be able to come up with enough money to fund the account. You hope the stock market will work in your favor. And you pray your child will stop searching for the sex scenes in "Grand Theft Auto" and start studying for his SATs.
With so much on the line, the news that the former director of Utah's 529 savings plans embezzled money from the plan is unsettling. Earlier this month, the Securities and Exchange Commission announced a settlement with the Utah Educational Savings Plan for failing to disclose flaws in its system that enabled Dale Hatch to transfer $85,000 to his own account. The SEC said he attempted to steal an additional $200,000 but was stopped by plan employees.
It was the SEC's first enforcement action against a state-sponsored 529 plan. The SEC also brought federal civil charges against Hatch, who was fired in July 2004.
UESP officials say the plan has repaid investors, strengthened internal controls and improved disclosures. But the case will likely raise concerns about regulation of the tax-advantaged plans. Critics say the information some plans provide is inadequate and confusing, making it difficult for investors to gauge plan costs and investment performance.
At the request of Congress, the SEC is working on recommendations to improve oversight of 529 plans. But in the meantime, if you have money in these plans — or are considering investing in one — you need to make sure that you have the plan that's best for you. What you can do:
"That makes it very attractive if you live in a high-tax state," says James Canup, a partner at Troutman Sanders in Richmond, Va., who has helped several states develop their plans.
That doesn't mean you should automatically go with your own state's plan. In some cases, the tax break is relatively small and probably won't make up for a costly plan with mediocre investments. But if your state offers a low-cost plan and a tax deduction, you'll fare better by staying at home.
The SEC has issued a new guide that discusses the different types of college savings plans, taxes and expenses. See www.sec.gov/investor /pubs/intro529.htm.