IRS Permits More Frequent Investment Changes for 529 Plans

The Internal Revenue Service (IRS) will allow investments in a Section 529 program to be changed on a more frequent basis in 2009.

The IRS Notice 2009-01 modifies Notice 2001-55, 2001-2 CB 299, which permitted a change in the investment strategy selected for a Section 529 account once per calendar year, and upon a change in the designated beneficiary of the account. The guidance provides that a Section 529 program does not violate the investment restriction under Section 529(b)(4) if it permits a participant to change investment strategy selected for a Section 529 account twice during calendar year 2009.

“In response to concerns that have been caused by the recent condition of the financial markets, commentators have requested 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,” the notice said.

Notice 2009-1 is available here and will appear in Internal Revenue Bulletin 2009-2, dated January 12, 2009.