The tax-advantaged college savings plans established by Congress 20 years ago are less well-known today than they were a year ago.
About 72% of Americans cannot identify a Section 529 savings plan as being for college savings, according to a recent Edward Jones survey of 1,006 adults. That's up from 66% a year ago.
Plan awareness is higher among those who would be most likely to have the resources to fund them. About 46% of those with at least $100,000 or more know what a 529 plan is, compared with 18% of those with less than $35,000, the poll found.
Adults with children also were more likely to be familiar with the plans.
“Like other financial topics, saving for college is something parents and grandparents tend to put off, thinking they'll take it up later,” said Danae Domian, principal at St. Louis-based Edward Jones. “Often the lightbulb doesn't go off until kids start getting older and thinking about college.”
Having a conversation with a financial professional about the costs of college, can often spur parents to save for education, especially using 529 plans, she said.
About 12.5 million 529 plan accounts have a total of about $253 billion in assets today, according to the College Savings Plans Network. Funds in the plans can be used for most college expenses without owing taxes on investment gains.
Peg Creonte, senior vice president of Ascensus College Savings, which provides administrative services to 31 plans in 17 states, said her firm has found a similar lack of awareness of 529 plans.
“It's a product most people aren't very familiar with and they just turn to their savings account to save for college,” she said. “Long term, that's not ideal given the tax benefits of the 529s.”
In addition to the federal tax benefits, most states also offer a deduction for those who contribute to 529 accounts.
If more companies were to educate their employees about college savings vehicles and participated in helping them implement them, it would help 529 savings soar, similar to the way integrating 401(k) plans into employer benefits has helped push retirement savings, Ms. Creonte said.
Some U.S. companies already have added 529 plan assistance to the benefits they provide their employees. Legislation introduced last month in Congress would allow employers to receive a tax deduction for contributing to employees' 529 plans.
The measure from U.S. Sen. Richard Burr, R-North Carolina, and Sen. Bob Casey, D-Penn., would give companies up to a $1,000 tax deduction for matching an employee's college-related contribution.
About 86% said they would participate in a 529 college savings program that was offered as an employee benefit, the recent Edward Jones survey found.
Of those with children who are 13 to 17, 93% said they would partake in such a workplace program.
The bipartisan bill also would extend further tax credits of up to $2,000 to low-income and middle-income families who save for college in 529 plans, which are named for the Internal Revenue Service code that created them.
Sen. Burr said the bill will make it easier for families to save for college “so that they don't have to rely so much on debt to get a college education.”