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 college savings plan theme with textbooks and piggy bank and green chalkboard background](https://cdn.mos.cms.futurecdn.net/DsLQyz8aWR3EUsZjzGMhD6-415-80.jpg)
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.”
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
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
To continue reading this article
please register for free
This is different from signing in to your print subscription
Why am I seeing this? Find out more here
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.
-
How to Give to Charity and Also Generate Retirement Income
Two ways to give to charity — a charitable gift annuity and a charitable remainder trust — can save you taxes and generate income.
By Evan T. Beach, CFP®, AWMA® Published
-
Four Myths That Hold Women Back From Financial Success
The financial challenges women face (the gender pay gap, for example) can be compounded by misconceptions. Here’s what to watch for and how to compensate.
By Mindy J. Oglesby, CFP®, NSSA®, IRMAACP Published
-
Why Do People Retire in Florida? 9 Things You Must Know
Attention Florida-bound retirees: There's more to the Sunshine State than Disney, golf and beaches.
By Bob Niedt Published
-
30 Early Walmart Deals Ahead of the Big Sales Event
Walmart Deals sales event starts next week, but some great deals are available now. Save on thousands of items from tech and toys to outdoor and travel.
By Kathryn Pomroy Published
-
Best Amazon Prime Day Early Deals
Check out these early deals on everything from tech and clothing to household items and kitchen gadgets now before Amazon Prime Day 2024 drops
By Kathryn Pomroy Published
-
How To Save Money on Energy Bills When You're Away From Home
Check out these 7 easy steps that can save on energy bills while you're away
By Kathryn Pomroy Published
-
Best Places to Rent 2024 — How Does Your City Rank?
The best places to rent in the U.S. include Miami, suburban Chicago and North Jersey, according to a new survey from RentCafe.
By Kathryn Pomroy Published
-
Are You Confident About Your Finances? Many Americans Are
More than 60% of Americans feel they are in better shape to reach their financial goals than the generations that came before them, according to a 2024 Schwab Survey
By Kathryn Pomroy Published
-
Can a NEST Smart Thermostat Save You Money?
A NEST smart thermostat enables you to control your heating and cooling system by phone or voice and lower your utility bills. On the downside, you can’t automatically set schedules.
By Kathryn Pomroy Published
-
Widows Share Their Financial Strategies
Widows discuss what helped - and would have helped - with finances and documents after their spouses' deaths.
By Janet Bodnar Published