Half of Americans Don't Know What a 529 Plan Is. Are You Missing Out?
Despite the rising cost of college, half of Americans don't know what a 529 plan is, missing out on the chance to take advantage of this valuable savings tool.
529 plans can be a valuable tool to save for college, but many Americans aren’t utilizing these tax-advantaged savings accounts. In fact, a surprising number of people don't even know what 529 plans are, even as college gets more and more expensive with each passing year. If you’re saving for your children’s or grandchildren's higher education, take the time to learn what a 529 plan is and how it can benefit you and your family.
529 plans
A 529 plan is a tax-advantaged savings account designed to be used for a beneficiary's education expenses. These plans allow a contributor to prepay a beneficiary's qualified higher education expenses at an eligible educational institution or to contribute to an account for paying those expenses. And while 529 contributions have to be made with after-federal-tax money, the contributions grow free from federal or state tax.
Andy Esser, an Edward Jones Financial Advisor in Durham, NC said in a statement: “As a financial advisor and parent, I see first-hand the varying benefits of 529 funds – no matter what path a child may choose. Educating families on those benefits leads to more impactful results.”
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But many are missing out on the benefits of a 529 plan, including tax-free growth, gift tax benefits, the opportunity to rollover unused funds into a Roth IRA and the ability to use the 529 Grandparent Loophole to fund a grandchild’s education without impacting their financial aid eligibility.
According to a study from Edward Jones, 50% of Americans don’t know what a 529 plan is. More specifically, out of all Americans who are actively saving for a child’s education, 32% are unaware of what a 529 plan is, and 60% do not feel they’re saving enough to reach their goals for future education expenses.
The study also found that in order to reach education savings goals, Americans have turned to several other strategies, including using a personal savings account (35%), scholarships (18%), federal or state financial aid (18%) and getting a job at a school or university for tuition benefits (9%). The rising cost of tuition, rulings about college admissions criteria and the increase in applicants at numerous colleges are all factors driving individuals to save for their children’s education.
Surprisingly, however, 84% have not or do not plan to invest in a 529 plan as part of their education savings strategy.
Rising cost of college
College tuition has indeed skyrocketed. According to Best Colleges, using data from the NCES, the average cost of college tuition in the U.S. for undergraduate students has more than tripled over the last 58 years, rising from $4,648 in 1963 to $14,307 in 2021, after accounting for inflation. And from 2010 to 2021, tuition and fees rose by 17%, jumping from $12,214 to $14,307.
Furthermore, the College Board reports that in 2022-23, the average cost of tuition and fees for a full-time undergraduate student at a public four-year in-state college was $10,940, while the average cost for a student at a public four-year out-of-state school was $28,240.
Over 43 million Americans carry federal student loan debt, with an average balance of almost $40,000. By starting early and saving for your child's or grandchild's college in a 529 account, you can help them avoid the heavy burden of student loans later on in life. The sooner you start, the better.
Related Content
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Erin pairs personal experience with research and is passionate about sharing personal finance advice with others. Previously, she was a freelancer focusing on the credit card side of finance, but has branched out since then to cover other aspects of personal finance. Erin is well-versed in traditional media with reporting, interviewing and research, as well as using graphic design and video and audio storytelling to share with her readers.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Tech Outage: How to Get Reimbursed if Your Flight Was Canceled or Delayed
Did the global Microsoft outage disrupt your travel plans? Here's how to get reimbursed if your flight was canceled or delayed.
By Erin Bendig Last updated
-
How the Tech Outage Impacted Banks and Finances
A major tech outage that caused chaos at airports also impacted banking and finance.
By Alexandra Svokos Last updated
-
Get Your Starbucks $3 Drink Today
Starbucks $3 Drink specials are available this Friday only, July 19, from 12 to 6 p.m.
By Kathryn Pomroy Published
-
After Amazon Prime Day: The 25 Best Deals Still Going On
If you missed out on Amazon Prime Day, no worries. There are dozens of "too-good-to-miss" Post-Prime Day deals to cash in on, from Moen, Keurig, Apple, Ninja, Levis and more.
By Kathryn Pomroy Published
-
Amazon Prime Day Southwest Deal: 30% Off Domestic Flights
Amazon Prime Day Southwest Deal: 30% Off Domestic Flights
By Kathryn Pomroy Published
-
Amazon Prime Day: Best Deals Under $50
Get the best Amazon Prime Day deals under $50 before they sell out.
By Donna LeValley Published
-
Save Money on Your Energy Bills with These Amazon Prime Day Deals
Amazon Prime Day is prime time to get great deals on energy efficient devices and appliances.
By Donna LeValley Published
-
Amazon Prime Day Savings: The 20 Best Items to Splurge On
Score exclusive Amazon Prime Day savings on those big-ticket items you've been dreaming of.
By Erin Bendig Published