529 college savings plan

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21 years later, 529 plans get no respect — even though they save on taxes, too.

More than two-thirds of Americans don’t know there’s a tax-free way to save for college, even though it’s been around long enough that kids born when it debuted would be in college by now.

State-sponsored 529 plans are the least likely option to be used by people considering college, according to a study from the financial services firm Edwards Jones.

“The cost of college is rising annually, and many Americans are trying to identify the best savings strategy to address their needs,” says Edward Jones’ Kyle Andersen. “Most Americans are unaware of the wide array of strategies that exist to help them put their goals into action.”

The plan can be set up by parents, grandparents, or really anyone else to fund a child’s post-high school education. Your money goes into the account after taxes and the funds, including earnings on the investments, are withdrawn tax-free as long as the money is spent on certain “qualified” school-related expenses, such as classes, dorms, books or student fees. If you’re interested, we have more information about how 529 plans work.

Gen X-ers were the generation most likely to recognize 529 plans, at 47 percent. Just 30 percent of millennials and 29 percent of baby boomers knew what one was. Similarly, respondents with children were far more likely to correctly identify 529 plans as a college savings plan than those without children — 42 percent versus 27 percent, respectively.

Awareness of 529s doesn’t mean people are using them, though. The most popular way to pay for college is through personal savings accounts, with 43 percent of respondents saying they used or plan to use this method. This is followed by scholarships and state or federal financial aid at 36 and 35 percent respectively.

The least popular method was a 529 plan, just below student loans at 23 percent.

Millennials are most open to using various saving strategies to pay for college, but showed a strong preference for using a personal savings account, with 61 percent indicating so.

Millennials are also the generation most likely to use scholarships, at 55 percent compared to 46 percent for Gen X-ers. They’re also most likely to use federal or state financial aid at 59 percent, compared to 38 percent for Gen X-ers and much lower figures for baby boomers.

“We’re encouraged by the fact that younger respondents are leveraging a combination of investing and savings strategies to help pay for college,” says Edward Jones’ Danae Domian. “There are many variables that affect a college savings strategy, so it’s important to stay well diversified and start planning immediately.”

Although few are familiar with the 529 plan, it is slowly catching on. More are familiar with it than last year: 32 percent, compared to 28 percent in 2016.

“Proper education can prevent individuals from solely relying on scholarships or financial aid, as these strategies can be unpredictable,” says Domian. “Incorporating a 529 plan into an overall college savings strategy will help with long-term planning and allow for flexibility in both annual contributions and recipient eligibility based on individual lifestyle.”

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Meet the Author

Gregory Cox

Gregory Cox


Cox is a freelance writer for

Budgeting & Saving, College

back to school, college savings, parents, student loans

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