The Majority of Americans Lack Significant Understanding of 529 Plans, According to New Edward Jones Study

May 13, 2019

More than one-third of American parents don’t save anything for future education expenses

St. Louis – May 13, 2019 – A recent study by financial services firm Edward Jones found the number of Americans who do not recognize a 529 plan as an education savings tool has risen to 67% – a 5 percentage point increase from 2012, the year the survey was first commissioned. Of those who correctly identified a 529 plan as an education savings vehicle, almost half (48%) were unaware it can be used to pay for qualified K-12 tuition expenses; 50% of parents with children in the household younger than 18 said the same.

"It's concerning to see that in nearly a decade, the number of individuals who do not understand or know what a 529 plan is has increased," said Tim Burke, an Edward Jones Principal. "What's more alarming is that parents with young children, those who stand to benefit the most from this type of savings plan, are not aware of its many advantages, not just for college, but for K-12 education expenses as well."

Saving for Education Takes a Backseat to Other Financial Priorities

When prioritizing five financial goals, Americans across generations ranked preparing for retirement as the most important (30%), followed by preparing for the unexpected (24%), living in retirement (21%), paying for education (8%) and planning for their estates or inheritances (5%).

At the same time, parents with children younger than 18 reported preparing for the unexpected as their main financial priority (38%) compared to only 8% who ranked paying for education in the top spot.

Less Reliable Savings Strategies Favored for College Costs

More than one-third of parents with children younger than 18 (36%) said they do not save any money for future education expenses. Only 11% said they save more than $5,000 per year.

Regarding specific education savings strategies, 529 plans remained the least prioritized strategy at 18%, a slight uptick from last year's results (13%). Respondents indicated that a personal savings account was the most common method Americans used or intend to use (38%), followed closely by scholarships (35%), federal or state financial aid (33%) and private student loans (20%). Of those who did not or are not planning to save for education using a 529 plan, 71% said they were not aware of the features and potential tax benefits.

"By relying on strategies that aren’t necessarily guaranteed, like scholarships, federal or state financial aid, Americans leave themselves vulnerable," added Edward Jones Principal Kyle Andersen. "The numerous tax benefits, investment growth potential and flexibility of a 529 plan make it a valuable investment vehicle for parents saving for their children's future education costs. As the cost of education continues to rise, it is crucial for parents to invest in their children's education as early as possible, through an investment vehicle built specifically for this purpose."

As part of its ongoing effort to raise awareness for 529 plans and education savings techniques, Edward Jones branches across the country are recognizing May 29 as "Save for Education Day," a firm-wide holiday derived from the name of the education savings tool.

Edward Jones branch offices will be hosting events in their communities to remind investors about the importance of setting education savings goals. Investors are encouraged to visit their local branches to learn more about planning for their children's educational future.

Methodology

This survey was conducted by Engine's Online CARAVAN® Omnibus among a national sample of 1,002 adults 18 years old and older from April 25-28, 2019.

Important Information:

Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10% penalty on the earnings portion. Before investing, you should consider whether your or the designated beneficiary's home state offers any state tax or other state benefits, such as financial aid, scholarship funds and protection from creditors that are only available for investments in such state's 529 qualified tuition program. Some states and state 529 plans may also recognize certain elementary and secondary tuition expenses as a qualified expense. Before using funds for elementary and/or secondary tuition expenses, please consult with the plan sponsor and/or a qualified tax advisor to avoid incurring potential state tax consequences and/or penalties. Student and parental assets and income are considered when applying for financial aid. Generally, a 529 plan is considered an asset of the parent, which may be an advantage over saving in the student's name. Make sure you discuss the potential financial aid impacts with a financial aid professional. Tax issues for 529 plans can be complex.

Please consult your tax advisor about your situation. Edward Jones, its financial advisors and employees cannot provide tax or legal advice.

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