A majority of Americans still do not know what a 529 college savings plan is, according to a new report from financial services firm Edward Jones.
When asked to identify a 529 plan as a college savings tool from among four potential options, 66 percent of the more than 1,000 US adults polled picked the wrong answer. Only 34 percent were correct, up slightly from 30 percent in 2014 but down compared to Edward Jones’ inaugural 529 Plan Awareness Survey in 2012.
Awareness of 529 plans varied by several factors, including household income, size, and number of children. According to the report, respondents with a household income of $100,000 or more were significantly more likely to correctly identify 529 plans (58 percent) than those with less than $35,000 of household income (25 percent).
In addition, awareness also increased depending on household size and the number of children, Edward Jones found. Americans with a household of three or more people were more aware of 529 plans (40 percent) than those with a household of two people (30 percent). Also, surprisingly, respondents with children between the ages of 13 and 17 were less likely to correctly identify the college savings plan (35 percent) than those with children under the age of 13 (41 percent).
“Despite headlines focused on the increasingly high costs of college, we still see a significant number of Americans who aren’t aware of one of the most important long-term savings vehicles that can help minimize the impact that the cost of education has on families,” Steve Seifert, principal at Edward Jones, said in a written statement. “Demographically, people are living longer and having children later in life, narrowing the time between a child’s college bills and his or her parents’ retirement age. This, coupled with the fact that the cost of college is increasing at a much higher rate than inflation, means that many are grappling with how to stay on track to meet savings goals.”
Started in 1996, a 529 plan allows the college saver to set up an account for a student or beneficiary, with the earnings from the account accruing tax-free. Withdrawals from the account are not subject to tax liability as long as the money is used for qualified expenses, such as tuition and room and board.
Legislation recently passed by both the House of Representatives and the Senate would also let students use money from 529 college savings accounts to buy computers and other technology, something they cannot do now with tax-free distributions from the accounts.
Earlier this year, the Obama administration said it would drop a proposal to raise taxes on 529 plans, after lawmakers on both sides of the aisle criticized the idea due to its potential impact on the middle class. According to an article by the Wall Street Journal, President Obama had proposed a set of tax changes in January aimed at boosting incomes for low- and middle-income households, including expanded availability of a break known as the American Opportunity Tax Credit, which provides as much as $2,500 per student for higher-education expenses.
To offset the cost of those plans, the White House proposal would have narrowed or ended several other breaks, including tax-free distributions from 529 accounts, which the Obama administration said disproportionately benefits higher-income households. But the backlash from both Democrats and Republicans forced the president to backtrack from his proposal.
The Edward Jones survey also asked respondents to indicate whether they believe they can afford the full cost of college for themselves or a family member. While male respondents were twice as likely to indicate “yes” than their female counterparts (21 percent compared to 11 percent of women), overwhelmingly, Americans say they simply can't afford the cost (83 percent). Just 37 percent of the highest-earning respondents (those making $100,000 a year or more in household income) said they could afford the cost.
“While the cost continues to be a major concern, Americans still recognize the value of a college education, so finding ways to manage those costs becomes paramount in the process,” Seifert said. “We need to remind them of the wide array of strategies that exist and help them put their goals into action through designing a plan that utilizes the appropriate tools in support of their savings goals.”
About Jason Bramwell
Jason Bramwell is a staff writer and editor for AccountingWEB. He has nearly 20 years of experience in print and online media as a journalist and editor.