The State of Education Savings: 529 Account Survey
A 529 plan is a state-sponsored education savings plan that can be used toward higher education expenses, trade schools, apprenticeships—and, in some states, elementary, secondary and religious schools—for the account beneficiary. These plans offer account owners tax advantages, flexibility and control.
Edward Jones conducts an annual survey about 529 accounts to stay abreast of Americans' awareness and knowledge of them. The most recent survey found that an increasing number of Americans are prioritizing saving for education. But many don't believe they are saving enough and are looking for tools to help.
Benefits of an education savings plan
The high cost of education and related expenses is no surprise to those saving for secondary education, yet many don't think they are saving enough. Connecting the benefits of 529 plans to more than base expenses could be the savings tool many have been searching for. In addition to tax benefits, a 529 plan has high contribution limits and anyone can contribute. These plans, while focused on qualified education expenses, are fairly flexible. Having a plan to save for education is important, as it helps families plan for the future and stay focused on saving goals.
Economic challenges are changing the way people prioritize saving. For those who don't have a more immediate concern, saving for the future is second to day-to-day and unforeseen expenses. According to the Edward Jones 529 survey, however, saving for education remains a priority. This is especially true among people between the ages of 18 and 34, Hispanic adults, parents, parents with children younger than 13, and parents with children in college.
Despite education being important to most adults, nearly half do not believe they are saving enough, and many are hopeful for tools that will lessen the burden. The types of savings tools that people use have remained consistent regardless of the changes in interest rates. The most used tools are (in descending order):
- private savings accounts
- federal or state financial aid
- a 529 plan
- private student loans
The pause on student loan payments, which started in March 2020 and is currently targeted to end in June 2023, hasn’t been enough to change saving patterns, the survey finds. Other saving priorities may be top of mind, as most people indicate no planned change to savings even with the prospect of student loan forgiveness.
529 accounts and education savings
Awareness of 529 plans dipped in 2021 but rebounded in 2022, with 40% of survey respondents saying they're familiar with 529 plans. Clearer communication around 529 accounts and their benefits could increase usage of this account as approximately one-quarter of people are searching online for tax benefits associated with educational savings. One specific benefit that would encourage education savings is the possibility of reallocating unused savings. According to the 529 survey, 33% of adults would save more if they better understood how unused savings could be used.
While there are a number of reasons people don’t use 529 accounts, including not seeing the value, and misunderstanding how the savings can be used, 40% of respondents did not select a provided reason for why they didn’t use 529 accounts. This leaves an undetermined barrier to increasing the use of 529 accounts for education savings.