Proposed Changes for 529 Plans

I saw an article in the newest issue of Financial Advisor Magazine regarding proposed changes to 529 Plans. According to the article, some of the proposed changes are:

• Third-party contributions to 529 accounts would be prohibited.
• The penalty on nonqualified withdrawals would be increased from 10% to 20% when the withdrawal is made for the contributor 20 years after establishing the 529 account.
• Beneficiaries who are not the plan's original ones would be subject to a 35% excise tax on nonqualified distributions over $50,000. The tax would increase to 50% on distributions of $150,000 or more.
• Only trustee-to-trustee rollovers would be permitted.
• A plan contributor could not transfer account ownership to another person, although an administrator could be named to administer the account.
• All 529 plans created before the regulations are enacted would not be affected if they stop taking contributions. If contributions continue, the new rules would apply.

These are some significant changes. My guess is that if these are enacted 529 Plans will become less popular.