They could have a major impact on 529 plans.

Financial advisor Gina Koprowski has no intention-at the moment-of changing her advice to clients when it comes to saving for college expenses. For most of them, a combination of a custodial account and a 529 plan or Coverdell education savings account (ESA) is the best option, she says.

But she along with many other college-funding experts are watching the progress of President Bush's tax proposals, announced earlier this year, for fiscal year 2005. If Life Savings Accounts or Retirement Savings Accounts are enacted, they could have a major impact on 529 plans in particular and could put the brakes on their growth.

"I don't see them going away entirely, but they will not be at the forefront of education savings the way it's been," says Koprowski, director of financial planning for Delessert Financial Services in Waltham, Mass.

Others agree that Bush's proposals-if enacted-would affect college savings choices. But they stress that's a big "if." Bill Raynor, secretary of the College Savings Foundation and chairman of its government affairs committee, says the foundation doesn't expect Bush's savings proposals to pass this year. The foundation's members include 14 companies that primarily are program managers or distributors of 529 plans.

"When [the savings proposals] weren't mentioned in the State of the Union, that tells a lot-that they're not that highly prioritized. Based on the budget crisis, it's going to make anything that has significant costs very difficult to pass," comments Raynor, who also is vice president and director of education savings and sales at AIM Investments in Houston.

Observers agree that college savings decisions should be made based on what rules apply now and that no one should halt their contributions based on proposals that may or may not pass. Nevertheless, it's important to be aware of what Bush has proposed. For one, advisors may need to answer clients' questions about the initiatives. Also, advisors may find it interesting to compare what Bush proposed with the final outcome.

Here are highlights of Bush's proposals that would affect college saving:

Provisions of the Economic Growth and Tax Reconciliation Act of 2001 (EGTRRA) that sunset on December 31, 2010, would become permanent. Among many other things, this law made qualified distributions from 529 plans and ESAs free from federal income-tax. Not surprisingly, college savings proponents see this proposal as extremely favorable for 529 plans. However, a lot of other tax cuts-the elimination of the estate tax, for example-are lumped in as well, all of which are projected to be a significant revenue drain going forward. In light of the budget deficit, some doubt Congress would enact such provisions now.

Lifetime Savings Accounts (LSAs) would be created and become effective January 1. Like making the tax cuts permanent, some observers don't give LSAs much chance of happening this year. However, if and when they do, experts agree they'll be a great deal for savers. Individuals could make cash contributions of up to $5,000 a year to an account for any individual, although the total amount in one individual's name couldn't exceed $5,000. Parents could contribute $5,000 annually to their own accounts, as well as to accounts in their children's names.

Contributions would not be deductible, but earnings and all distributions would be tax-free. Distributions could be taken for any reason. Unlike with 529 plans, LSA contributors wouldn't pay a penalty if they used the accumulated funds for something other than educational expenses.

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