Educated Saving

Understanding 529 college savings plans
Deborah Goodkin

Recently there has been news about the large inflow of assets into tax-advantaged 529 college savings plans. While that is good news for savings, all 529 plans are not the same. Deborah Goodkin, managing director of Nebraska’s 529 College Savings Plans, Nebraska Educational Savings Trust (NEST), who works for First National Bank of Omaha—program manager for Nebraska’s plan—recently spoke with PLANADVISER about trends in the 529 industry and what advisers should know about when working with these plans. 

PA: What do you see as the top three trends in the college savings industry today?

Goodkin: First, one of the biggest trends we are currently seeing across the industry is a specific focus on getting younger families to open 529 plans. Many college savings plans, including NEST, are encouraging young families to simply start the process of saving for their children’s future education needs. The industry is collaborating to increase the overall awareness of 529 plans and their benefits among young families. Also, many program managers are offering creative ways to learn about 529 plans through financial literacy efforts, outreach events and general marketing campaigns. For example, here at NEST, we sponsor community-based events each year called NESTFest. These fall festival-type events involve the entire community and provide families with information on the value of saving for college in a fun, friendly environment.

Second, I am seeing a trend in the industry of evaluating and adjusting the investment options offered within the 529 plans. In an effort to align the investment options to the needs of account owners and in response to the ever-changing market, program managers are integrating new investment choices into 529 plans. Saving for college differs from retirement savings in a number of ways; however, one of the most meaningful differences is the amount of time the account has to accumulate and grow its balance. If an account is opened when a child is 5 years old, the account owner has, on average, less than 15 years to accumulate a balance in the account to be used for college expenses. As a result, the investment options need to work appropriately and align to this timeline. In the past 18 months, NEST has been active with our investment options through adding an FDIC-insured bank savings option, replacing certain investment options to lower cost and adding additional asset classes to allow account owners the ability to increase their diversification.

Finally, I am seeing a trend within the industry of program managers engaging social media and enhancing their Web presence to communicate more effectively with account owners. In an effort to provide account owners with a connection to their college savings plan account, program managers are utilizing many of the online tools available to marketers. While this trend is certainly not unique to the college savings industry, we are definitely in line with the online trends occurring broadly between consumers and product providers.