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Business and Policy Areas
Business and Policy Areas

Few Use 529 Savings Plans

January 28, 2013

Section 529 plans, managed by states, allow after-tax dollars to be placed into an account where earnings accumulate tax-deferred. Withdrawals used to pay for qualified higher education expenses are not taxed. Last December, the Government Accountability Office (GAO) published a report examining the efficacy of 529 plans. The data GAO used combines 529 plans and Coverdell Education Savings Accounts.

As of July 2012, there were more than 100 of these savings plans, with assets totaling $167 billion. Just 3 percent of all families in the United States use these savings plans, though of the 25 percent of families who said they expected major education expenses in 5-10 years, about 7 percent had 529 plans or Coverdells. Most families with 529 plans or Coverdells were significantly wealthier than those without the accounts. "The median financial asset value for families with 529 plans or Coverdells was about $413,500, which is about twenty-five times the median financial asset value for families without 529 plans or Coverdells," the report explains.

The report details federal requirements for the plans, the operation and features of the plans, and required disclosures for plans sold through broker-dealers, not the states. GAO's report then highlights plan features and other factors that affect participation in 529 plans, including tax benefits, fees, and investment options. Some states, though, have adopted strategies to address barriers to participation, such as matching programs, low or no minimum initial contributions, and low-risk investment options. Finally, the report examines the extent to which savings in 529 plans affect financial aid awards. 


Bryan Dickson
Senior Policy Analyst