College savings on the rise — but amount still is puny

The number of parents who have saved at least $5,000 for their children's college years has rebounded since 2009. But those who don't have a financial adviser are far less likely to have put away that amount, a new survey shows. What's more, 5K pales in comparison to the actual costs of higher education. About 45% of parents with college-bound children said they have saved more than $5,000, up from 40% who said the same in 2011, according to an annual online survey conducted the College Savings Foundation. That figure has steadily climbed since a 2009 survey found that less than a third of parents had saved at least $5,000. “Coming out of 2008 and early 2009, many families sat on the sidelines and said they wouldn't make a decision about saving for college until things turned around,” said Roger Michaud, chairman of the College Savings Foundation and a senior vice president at Franklin Templeton Investments. “We're seeing most success where parents are using a financial adviser.” Indeed, about 65% of the parents who use a financial adviser said they have socked away at least $5,000 for their kids' college education. In comparison, only about a third of parents who don't use an adviser have saved that much for college. This is not surprising. About two-thirds of the money that flows into Section 529 college savings plans — which is one of the most popular ways to save for college — is directed by a financial adviser relationship, Mr. Michaud said. Then again, $5,000 isn't exactly a kingly sum, particularly when college costs are likely to be more like $250,000, said Fred Amrein, principal of Amrein Financial. “It's great that people are saving, but one of the biggest issues is figuring out the best way to save for college,” and that differs among families, Mr. Amrein said. For older parents who are scheduled to retire soon after their kids' college years, it may be best to save in a Roth individual retirement account, he said. These accounts offer greater flexibility, so the money can be used for education costs or retirement. Moreover, the funds socked away in a Roth don't qualify as income and therefore are not included in schools' financial aid calculations. The College Savings Foundation survey found that families are starting their college savings earlier — with some beginning even before their babies are born. A total of 57% of parents said they had started saving for their children's college before those kids were 5, with 8% of parents saying they began saving before their children were actually born. In last year's survey, a little more than half said they began college savings before their children were 5. About a third of the parents said they have not yet begun saving for college. Of those who have begun saving, 30% are using 529 plans, which allow participants to choose from certain investment portfolios. The funds grow tax-free as long as when they are spent on higher education. Nationally, there's $158 billion in about 10 million 529 accounts, according to Financial Research Corp.