While 529 education savings plans offer a raft of potential benefits, a new survey by Edward Jones and Morning Consult reveals there’s gulf of ignorance among US adults around them.
Conducted among 2,202 adults from April 22 to 25, the survey found that half of the respondents do not know what a 529 plan is, and less than a quarter actually use one.
According to the survey, one-fourth of adults understand that 529 plans can be used for more than just higher education. The primary obstacle holding adults back from opening a 529 account, according to the survey, is a belief that it requires substantial savings or income.
The survey also highlights a knowledge gap even among those already saving through a 529 plan. While 77 percent of these individuals know that 529 plans can be used beyond higher education, only 47 percent are aware they can be used for vocational and trade schools, 43 percent for room and board, 41 percent for student loan repayment, and 19 percent for rolling over funds to a Roth IRA.
Despite the lack of awareness, the survey suggests that recent legislative changes have made parents more inclined to save for their children's education. The SECURE 2.0 Act, which allows investors to roll up to $35,000 of unused 529 funds into a Roth IRA under certain conditions, has made 34 percent of adults more likely to save for education.
The high cost of college education, with some institutions charging over $90,000 per year, is motivating 24 percent of respondents to save more. However, 60 percent of Americans do not feel they are saving enough to meet future education expenses.
While one-third of parents saving for a child's education use a 529 plan, many still rely on personal savings accounts (35 percent), scholarships (18 percent), and federal or state financial aid (18 percent). Interestingly, 9 percent plan to seek employment at educational institutions for tuition benefits.
Only 42 percent of those who discuss 529 plans with their children involve them in the decision-making process. Most adults consult family members (56 percent) or a financial advisor (33 percent) before making education savings decisions.
Among parents already saving for a child’s education, 12 percent of those with infants or toddlers and 19 percent of those with preschoolers are using 529 plans. Further, 34 percent of parents saving for their child’s education prefer their loved ones make contributions to 529 plans and education savings goals over gifts like toys and technology during holidays and birthdays.
Even though one-third of Americans saving for education do not know what a 529 plan is, three out of five say the tax benefits make them more inclined to enroll in one. Nearly three-fifths (58 percent) are drawn to the flexibility of controlling their 529 accounts, and a nearly equal number (56 percent) appreciate using the money to pay for qualified education expenses.
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