529s: The College Savings Option Americans Are Ignoring

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college-fundAs the cost of higher education skyrockets, it seems like families would be researching the best ways to pay for college.

Instead, new research reveals Americans actually are less aware of certain options when it comes to saving for school.

According to a survey by financial services firm Edward Jones, only 30% of Americans were able to accurately identify a 529 college plan as a savings tool from among four options. That’s a significant decrease from 2012, when 37% chose the correct option.

In the Northeast, 39% of people knew about 529 plans, down from 45% in 2013; and in the Midwest, just 30% of people were familiar with the savings tool’s benefits, down from 36% in 2013.

“It seems counterintuitive that the costs of higher education continue to rise while awareness for a vehicle than can make this cost more manageable continues to decline,” Greg Dosmann, principal with Edward Jones, told MainStreet.

In fact, the average cost of a private four-year college (including tuition, fees and room and board) increased a whopping 14% between 2008 and 2013, to $40,917.

So why aren’t more Americans learning how to prepare themselves for this financial burden? The problem may be that Generation X—roughly defined as those born between the early 1960s and the early 1980s, and the target demographic for 529 plans—doesn’t have the resources to invest in a college savings fund. They’re already plagued by student debt, high rent costs and wages that have barely increased in years; plus, many are still struggling to recover the money they lost during the 2008 recession.

But here’s a silver lining: The number of Americans who do contribute to 529s increased significantly since 2012, from 5.5 million households to more than 10 million, investing almost $204 billion at the end of 2013.

If a 529 plan sounds like it could be a good fit for your family, find out how to open a fund and start saving now.

  • JLP

    The bottom line is that more often than not, if something WORKS (gets the job done), people know about it because they cannot stop talking about it. Word of mouth is the greatest marketing tool for sharing how effectively any product/service performs. In the age of social media GALORE, you don’t think 529 College Funds would be talked about IF THEY WERE ACTUALLY WORTH TALKING ABOUT? Clearly, people are not talking about it because it is a mediocre product, AT BEST. There are options out there, in this day & age, that FAR outreach it & outweigh it in every way. 529′s need to be phased out, as do the financial planners who offer it as some exceptional product/service. How “old school” can any financial planner be to be pushing 529′s in a world that offers so much better? It is sad how financial planners have evidently stopped learning about the new products/services out there, simply resigned to being old dogs that stick to their own tricks. These old farts probably still sell term insurance & CD’s (Certificates of Depreciation).

    The truth is that 529′s SHOULD be forgotten. They either do not perform well enough, or they TANK with the market. It baffles me that risk could ever be associated with a fund that saves for higher education, opened by trusting, well-meaning parents for their CHILDREN. It sickens me, actually. You would THINK the 529 College Fund would be the most secure, would have upside potential, have NO downside potential, & be tax-free — 100%. If there are products/services out there that do offer those things, why doesn’t the 529?

    You would also want to think that such a fund would allow parents to save within it without worrying about tax implications. Sadly, this fund & its “tax advantaged” status has limitations. According to the IRS website, “Contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary. If you contribute to a 529 plan, however, be aware that there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.” I don’t know about anyone else out there, but my college education cost that much per semester. When it comes to paying for college, $14,000 does not go a long way. Not today. College tuition rises at 7% per year.

    Furthermore, applying for financial aid seems to be a GIVEN when someone has a 529 College Fund. It is clearly not built to cover ALL of the necessary expenses of college — for all (at least) 4 years. Clearly, something has to supplement this fund (for lack of performance, or lack of being able to continue to save within it without paying taxes). When applying for financial aid, do you think the kid with the 529 College Fund gets the money, or do you think they give it to the kid who has NOTHING saved? The fact is, having a 529 College Fund will also put a kid at the back of that financial aid line. Do you really want your kid to be disadvantaged for having a 529 College Fund?

    As it concerns the X-Generation or any generation, even in difficult times, if something were worth the money & effort, people tend to find a way to make it happen. The X-Generation has standards & 529 COLLEGE PLANS DO NOT MAKE THE GRADE. Saving in a vehicle like this in lieu of the EXPANSE of other options out there is a GREAT WAY to make your kids settle.