529 Account Assets Graduate to New Level | American Funds

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DECEMBER 19, 2016

529 Account Assets Graduate to New Level

A recent report from the College Savings Plans Network shows total investments in 529 accounts, and the average 529 account balance, hit new record highs in the first half of 2016.
$266.2 billion — Total investments in 529 plans as of June 30, 2016

Americans have 266.2 billion reasons to feel better about affording college tuition.

Investments in 529 plans hit a record $266.2 billion as of June 30, 2016 —an increase of 5.1% from December 31, 2015, according to the College Savings Plans Network (CSPN), a national non-profit association whose members include administrators of 529 savings plans across the country. 

The average 529 plan balance reached an all-time high of $20,975, an increase of 3.1% over the same period. Nearly half (47%) of all accounts received a contribution in the first half of 2016. 

While 529 plans continue to gain traction, however, many parents are still missing out on the potential benefits of these college savings vehicles. 

“Seventy-three percent of parents cite paying for college as their top financial concern1, yet 75% of families are unfamiliar with 529 college savings plans2,” said Kris Spazafumo, vice president and senior product manager of Investment Services Wealth Management at Capital Group. “In fact, while 529 assets have reached an all-time high, most parents aren’t utilizing 529s and are therefore potentially foregoing important tax benefits.”

Named after Section 529 of the Internal Revenue code, 529 plans are tax-advantaged accounts that help families save for college. Earnings in 529 accounts are not subject to federal tax, and generally are not subject to state tax, if the funds are used for college and for other qualified educational expenses.

In addition, a number of states allow a deduction from (or a credit against) state taxes for all, or part, of a contribution to certain 529 plans.

How much of a difference can a 529 investment make? Think of it this way: The average tuition, fee, and room and board charges for in-state students in a public four-year school are $20,090, according to the College Board’s “Trends in College Pricing” report for 2016. The average 529 account balance of $20,975 would pay for about one year of school.

“Every dollar saved for college now is money that parents or students will not have to borrow – and then repay with interest – later,” says Spazafumo. 

As the holidays draw near, Spazafumo suggests opening or contributing to a 529 account for the future college students in your life. “Consider giving a gift that won’t be forgotten in a year – the gift of education.”

1 “U.S. Parents’ College Funding Worries Are Top Money Concern.”  Gallup. April 20, 2015. Retrieved from http://www.gallup.com/poll/182537/parents-college-funding-worries-top-money-concern.aspx

“3 Out of 4 Americans Still Do Not Know What a 529 College Savings Plan Is, According to Edward Jones Study.” Edward Jones. May 17, 2016. Retreived from https://www.edwardjones.com/about/media/news-releases/529-plan-awareness.html

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