The Case for 529 Plans

In a recently published Morningstar report, researchers drew upon data from the Federal Reserve Bank’s “Survey of Consumer Finances” and the Sallie Mae/Ipsos survey “How America Saves for College” to create two savings simulations.  In the first simulation, families continued on their current course, which relied in part upon using ordinary savings and checking accounts for the accumulations.  The second simulation exclusively used 529 plans for saving the same amount of money for college.

The researchers found that utilizing the 529 plan would increase the amount available for college by roughly 25%.  Most of the increase was attributable to the superior investment earnings, not to the tax benefits, although state tax benefits and capital gains tax benefits did play a role.  In the aggregate, the report concluded that an additional $237 billion would be available for higher education through full usage of 529 plans, without anyone saving an additional dollar.

Spreading the Word

The researchers then tested three approaches to presenting information about 529 plans to see what might be most persuasive to prospective savers.  These included:

  • a table summarizing the benefits and drawbacks of 529 plans;
  • a graph comparing the financial benefits of 529 plans to other account types; and
  • an info-graphic to simplify the process of signing up for a 529 plan.

They found that the first two approaches did increase usage of 529 plans, while the third one did not.

They also warned that what is true in the aggregate may not be applicable to an individual family.  Personalized advice is essential to match individual family circumstances to the optimum choice in a 529 plan.

At The Trust Company of Kansas, we help people. We promise to minimize the burden of wealth management and bestow the freedom to enjoy everything else. Though The Trust Company of Kansas is not a provider of 529 plans, our officers are always willing to discuss your financial goals with you and help you to create a plan that is well-aligned with your wishes.  If a 529 plan is an appropriate investment for you to make, we would be glad to open a 529 account for you or a family member with a preferred provider on your behalf and manage the investment for you. If you have a specific question about investment management or education planning, please contact us at (800) 530-5254 or visit tckansas.com/contactus, and one of our Certified Trust and Financial Advisors will be happy to assist you.