Only 29% of Americans know that 529 plans are an education savings tool, Edward Jones found in a survey. This is down from 32% in 2017.
Given three other options as to what a 529 plan is, 17% said it is a retirement savings plan, 11% said it is a form of life insurance, and 9% said it is a low-cost health plan.
“It’s concerning to see the percentage of individuals who still don’t know what a 529 plan is or understand its usefulness in preparing to tackle education expenses,” says Danae Domian, an Edward Jones principal. “A 529 plan is a tax-advantaged savings plan, available to anyone, that is designed to encourage preparation for future education costs. There’s a misperception that only parents can establish these plans. But, in reality, any person can set up a plan for any student.”
However, 35% of Gen Xers and 27% of Millennials know what a 529 plan is. The survey also found that awareness increases as household income rises, with 52% of those in a household earning $100,000 or more correctly identifying a 529 plan. By comparison, only 17% of those with less than $35,000 in household income could do the same.
Asked about education savings strategies, 43% plan to use their personal savings, 33% plan to use scholarships, 31% are turning to federal or state financial aid, and 20% are using private student loans. At the bottom of the list is 529 plans, with only 13% planning to use them.
Fifty percent of Americans are not saving anything on an annual basis for future education expenses. Only 41% of parents with children younger than 13 are saving for future education costs.
“What’s alarming is the percentage of individuals with young children who are not saving for future education expenses,” Domian says. “As education costs continue to rise, beginning to save early on with a mix of strategies will be paramount in ensuring you’re prepared to handle higher education expenses and aren’t derailing other financial obligations, like your retirement, in the process.”
Among the 29% who understand what a 529 plan is, 65% said they were more likely to take out a plan in light of the Tax Cuts and Jobs Act. However, among those with children younger than 13, 53% said the tax reform bill would not make them more apt to take out a 529 plan.
Edward Jones notes that the Tax Cuts and Jobs Act changed the rules for 529 plans, permitting them to be used for elementary and secondary schools, not just higher education. Up to $10,000 per year per beneficiary can be distributed without incurring federal taxes.
As part of its ongoing efforts to raise awareness for 529 plans, Edward Jones branches around the country are recognizing May 29 as “Save for Education Day.” Each branch will host events in their communities to remind investors about the importance of setting education savings goals.
ORC International’s CARAVAN Omnibus Services conducted the survey of 1,004 individuals via landline and cell phones in April.