The popularity of Sections 529 college savings plans continues to explode, as total assets soared 67% over the past year to $43 billion, according to a new report form Boston-based Financial Research Corp.
The report also estimated that 529 assets would exceed $100 billion in two years and top $300 billion by 2010. The plans showed a 7.4% asset increased for the second quarter, according to the FRC, compared with that of the previous quarter.
“It’s a testament to the increased awareness and popularity of 529s as an educational tool,” said Whitney Dow, the FRC’s director of education savings research. “I think these numbers are reflecting the fact that 529s are the most attractive educational planning vehicle out there right now.”
Many financial planners and advisers, financial industry executives and state officials who run 529 programs agree, citing a wide range of reasons for the college savings plans’ continuing popularity, while also predicting sustained growth.
“I think you’re seeing that people are understanding how beneficial 529s can be, not only for education but for financial planning as well,” said Helen Rothlein, senior vice president of investments for Richmond, Va.-based Wachovia Securities Inc. “There’s no income ceiling, grandparents can take advantage of them, and they can be a wonderful estate-planning tool.”
Parents’ concerns about their own retirement and rising tuition costs have helped fuel the 529 boom, according to Ray Loewe, president of College Money, a Marlton, N.J.-based consulting firm.
He credited financial planners with helping parents recognize that “funding a college education is a retirement problem.”
Parents are increasingly attracted to the tax deductions available form 529 plans in large states such as New York, Said Ray Mignone, a certified financial planner and principal of an eponymous Little Neck, N.Y., firm with about $100 million under management.
“There’s a maximum deduction of $5,000 a person in New York,” he said. “That helps around April 15.”
Not surprisingly, state officials overseeing 529 plans are particularly bullish on the savings vehicles.
Joan Marshall, executive director of the College Savings Plans of Maryland in Baltimore, noted that the national figures cited in the FRC report mirrored 529 activity in her own state. Assets in the state’s 529 savings plan grew 7.5% in the second quarter to $559 million, compared with those of the first quarter.
“We’re seeing families continually to open up accounts at a healthy rate, and I see plenty of room for growth in the future,” Ms. Marshall said.
“People are getting more educated about the plans,” said Maureen Laffey, director of the Delaware Higher Education Commission in Wilmington.
“They’re also seeing the increases in tuition and afraid that college is not going to be affordable unless they do something,” she said. “And they see that financial aid at the state level in not keeping pace.”
Keith Calil, executive vice president of the Plymouth Meeting, Pa.-based College Assistance Network LLC, said fear may be driving the 529 market for the wrong reasons.
“There are a lot of implications in 529 plans that many people don’t understand, such as fees and their impact on financial aid eligibility,” he said. “People are signing up out of a sense of panic as they learn how much college tuition has gone up over the last two years, whether it’s appropriate for them or not.”