529 accounts reach record highs as intuitions climb

saving for college

529 plans reached a record high in the US last year. Image: Tax Credits/Flickr/CC BY

One alternative to costly student loans — that can hound a young professional years into his or her career — are 529 college savings plans. Last year, the average balance of 529 accounts grew to a record total. Still, few are using them.

Record year for 529 accounts

A new report from the College Savings Plans Network — a non-profit affiliate of the National Association of State Treasurers — says that the average 529 plan grew to a record $17,174 last year. That is a 12 percent gain from 2011. The nation’s total 529 investments grew to $190.7 billion, another record. A year earlier, that figure was just $165 billion, or a difference of 15.7 percent. The total number of 529 accounts also rose, by just by 3.7 percent.

Typically offered by states, 529 plans allow parents and guardians to save toward their kids’ college education and withdraw the money tax-free for legitimate college expenses. They are also sometimes called “qualified tuition programs.” Some 529 programs, known as “prepaid tuition plans,” allow parents to pay for tuition in advance and lock in current rates.

A dollar saves is one ‘you don’t have to borrow’

The plans are a great advantage over costly student loans, but, of course, they require much forethought and diligence. Iowa State Treasurer Michael Fitzgerald said, “Every dollar you can save is a dollar you don’t have to borrow.”

Young people who have a 529 plan, or some other kind of college savings plan, are seven times more likely to go on to pursue higher education than those who do not, according to a 2010 study by Washington University in St. Louis’s Center for Social Development.

Fewer using plans

Still, although the average balance has increased, relatively few parents and guardians are taking advantage of the programs. Last year, just 12 percent of 529 account holders made withdrawals for legitimate school expenses. That accounts for less than 7 percent of the nation’s college students.

But contributing more

And fewer account holders are contributing this year, too. Only about half did in 2012. In 2002, more than 80 percent did. However, those that did contribute seem to be doubling-down, and then some. Experts speculate that may be because of the strong stock market, and as tuition prices continue to rise.

“The recent strong market may be causing some people to take money out of their bank accounts and putting it into 529s,” said Joe Hurley, founder of savingforcollege.com.

Runaway tuition costs

Meanwhile, tuition prices continue to outpace inflation as public funding wanes. Tuition costs rose by 8.3 percent last year, according to a report from the State Higher Education Executive Officers Association.


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