Americans make contributing to 529 plans a priority and continue to save for college despite a down economy.
Saving for college remains a priority for American families who, despite the economic downturn, have $149.8 billion in investments in 529 plans, according to the latest report from the College Savings Foundation.
Families contributed $1.012 billion to 529 plans in the second quarter of 2011, an 8.8 percent year-over-year increase and the highest second quarter since the financial crisis, said the foundation in a statement, noting that “since the latter half of 2008, investor momentum has returned to 529s.”
The average balance of a 529 plan account was $15,492 in 2010 - an 18 percent increase from 2009, according to the most recent report from the College Savings Plans Network,
“While this growth is a welcome trend, it is important to note that the current account balance in a 529 plan is still less than today’s one-year total average cost of attending an in-state public college,” said Joan Marshall, chair of the network and director of the college savings plans of Maryland. Average total charges at a public four-year institution were $16,140 for the 2010-11 school year.
Planning for higher education expenses is more important today than ever, said Marshall, citing U.S. Department of Labor data showing that 62 percent of all U.S. jobs now require at least a two-year, if not a four-year, degree, or special training after high school. The number of jobs requiring post-secondary education or training is expected to grow to 75 percent by 2020.
While the demand for education is expected to grow, so are the costs, the network said, anticipating that college tuition could increase about 8 percent each year, doubling every nine years. Marshall said, “We clearly have a long way to go to achieve our vision of helping all families save for future higher education expenses and reduce their reliance on student loan debt.”
Millionaire Corner research shows that families in upper income brackets are most likely to open 529 plans, which allows investments to grow tax free. Assets can be withdrawn free of taxes when used for approved education al purposes. Nearly 30 percent of investors with $5 million to $25 million have 529s, compared to 10 percent of non-millionaire investors.
Automatic funding accounted for 36 percent of contributions to 529 savings plans in the second quarter. Age-based portfolios, which shift into more conservative investments the closer a student gets to college, accounted for two-thirds of assets held in 529s, said the foundation. Families are also showing an increasing preference for index investments within their 529.