Popular 529 Savings Plans Expand to Reach Students of All Ages

By Christina Kilroy

May 29, 2018

Today, on May 29—“5/29”—we mark 529 College Savings Day. Many people interested in saving for a child’s or grandchild’s future college costs are using targeted savings vehicles called 529 savings plans. The plans, which have grown in popularity over the past decade and a half as a way to save for a family member’s college expenses, may now also be used to cover tuition for elementary and secondary education.

2017 Tax Reform Expands Usefulness of 529 Plans

Assets held in 529 savings plans—named for the section of the tax code that provides for their favorable tax treatment—increased from $34.8 billion in 2003 to $293.9 billion in 2017, while the number of 529 savings plan accounts expanded from 4.2 million to 12.2 million over the same period.

Section 529 Savings Plans
Year-end, selected years

Sources: Investment Company Institute and College Savings Plans Network. See Investment Company Institute, “529 Plan Program Statistics, December 2017.”

Though 529 plans are already a top choice for families saving for qualified college costs, changes to the United States tax code in 2017 may make the plans even more popular in the future. The new tax law now permits 529 plan distributions up to $10,000 per student, per tax year, to apply to educational costs of younger students, such as tuition for the enrollment or attendance of the 529 account’s designated beneficiary at a public, private, or religious elementary or secondary school.

Why 529 Savings Plans Are Growing

Three features of 529 savings plans make them a popular choice:

Favorable tax treatment. This is arguably the 529 savings plan’s biggest draw, and the reason it’s preferred to other types of savings options. Nearly all states and the District of Columbia offer 529 savings plans, most of which are open to residents and nonresidents alike. Plan earnings grow tax-free—and the distributions are free from federal tax (as well as state tax, in most states) when used to pay for qualified education expenses. Just as important—529 plan account holders who invest in their state’s plan may be able to claim a state income tax deduction on all or part of their contributions.

Dedicated saving toward specific goal. Setting up an account focused on education savings, especially with automatic contributions, makes it easier to set aside small amounts of money that add up over time.ICI research indicates that education savings is a priority for households most likely to have young children—mutual fund–owning households headed by younger individuals tend to be more focused on saving for education than other households.

Choice and flexibility. A 529 savings plan gives an account owner a choice of investments and flexibility in determining how funds are used. The plan’s designated beneficiary can be replaced at any time with another qualifying family member. And, much like a 401(k) account or individual retirement account (IRA), investment dollars can be allocated among the plan’s investment options. Mutual funds are the most common investment option available in 529 savings plans. Account owners can compare the varying investment options and fees among state plans to find the best college savings option for them.

More about 529 savings plans:

529 plan information by state
ICI’s FAQs and data on 529 plans
ICI member companies that may offer education savings programs

Tina Kilroy is vice president of the ICI Education Foundation.

Permalink: https://www.ici.org/viewpoints/view_18_529_savings

TOPICS: Investment Education Savings Taxes

Invest in Your Future Through an IRA

By Christina Kilroy

March 13, 2018

Nearly 44 million US households invest and save for their future through individual retirement accounts (IRAs). If your household isn’t one, now is a great opportunity to join them. And if you are already saving in an IRA, there are some advantages that you may not be aware of—and that are worth knowing about as Tax Day approaches...

Autumn Air, Playoff Baseball, and…National Retirement Security Week

By Christina Kilroy

October 17, 2017

The baseball postseason is well underway and the air has finally turned crisp. Perhaps that’s why—as we’re marking National Retirement Security Week—our thoughts have turned to the words of Yogi Berra, the great New York Yankees catcher. He was credited with so many pithy, wise, and witty sayings that, in classic Berra style, he remarked, “I really didn't say everything I said.”

It’s National 401(k) Day!

By Sarah Holden

September 8, 2017

ICI is marking National 401(k) Day by spotlighting the strengths of 401(k) plans and their role in the American retirement system, and by reminding workers to get the most of their own 401(k) plans.

New ICI Paper Helps Readers Understand ETF Listing Processes and Standards

By Jane Heinrichs and Kenneth Fang

August 10, 2017

Exchange-traded funds (ETFs) have been a part of US markets for more than 20 years, and they remain some of the most highly regulated financial products, subject to multiple and sometimes overlapping statutory schemes.

A 529 Day Primer: Do You Know What State Your College Savings Plans Are In?

By Christina Kilroy

May 26, 2017

You might not know that May 29 is 529 College Savings Day, or even what a Section 529 plan is. But if you’re a parent or grandparent concerned about future college costs, the day presents an opportunity to learn how 529 savings plans can help you plan for—and pay for—your loved ones’ postsecondary education expenses.

ICI Study: Closed-End Fund Assets Were $262 Billion at Year-End 2016

By Shelly Antoniewicz

May 12, 2017

ICI recently released its annual report on the closed-end fund market, which analyzes data on closed-end funds, a type of registered investment company that issues a fixed number of shares that are traded on a stock exchange in the over-the-counter market.

ICI Staff Take Local Students on an “Investing Road Trip”

By Christina Kilroy

March 31, 2017

Among the eighth graders who walked into Junior Achievement’s Finance Park were an aspiring filmmaker, a model, and a sports agent. But for their daylong budgeting simulation—where each student is assigned an age, family, debt, credit score, job, and salary—they would transform into an auto mechanic, an insurance agent, and a bus driver.

Three Reasons Why You Should Consider an IRA

By Sarah Holden

March 8, 2016

April 18 is the deadline to file income tax returns with the federal government this year.

Getting Started in a 401(k) Plan—and Getting the Most Out of It

By Christina Kilroy

February 26, 2016

This week, ICI and the Investment Company Institute Education Foundation (ICIEF) joined thousands of corporations, nonprofits, and government agencies to celebrate America Saves Week.

Mutual Fund Investments in Private Placements: an Overview

By Gregory M. Smith

November 23, 2015

Given recent media interest in mutual fund investments in private placements, it might be helpful to review mutual fund disclosure and valuation obligations. How do funds handle securities that are not publicly traded?

How Millennials Are Shaping the Evolution of Investment Advice

By Christina Kilroy

June 2, 2015

The future of investment advice—as embodied in the youngest cohort of working Americans, known as the Millennial Generation—was the focus of a panel of financial services industry leaders at ICI’s 57th General Membership Meeting. The approximately 75 million 18- to 34-year-olds that make up the group have now overtaken Generation X (ages 35 to 50) as the largest generational group in the workforce, according to Pew Research Center.

Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets

By Chris Plantier

April 17, 2015

Following a pattern observed at the end of recent quarters, money market fund holdings of European issuers dropped at the end of March, although the decline was not as large as the previous quarter, ending December 2014. As we have noted before, for regulatory reasons European banks have been paring their balance sheets at the end of each quarter, resulting in a temporary decline in their desire to borrow from money market funds.

On Fiduciary Rule, New York Times Relies on Fatally Flawed Research

By Paul Schott Stevens

April 8, 2015

Today I submitted the following letter to the editor of the New York Times:

Happy Birthday ERISA! Congratulations on 40 Years

By Sarah Holden and Elena Barone Chism

September 2, 2014

Today marks the 40th birthday of the Employee Retirement Income Security Act (ERISA). Signed into law on September 2, 1974, ERISA introduced bold steps to safeguard Americans’ employer-sponsored pensions and created the individual retirement account (IRA). Assets earmarked for retirement totaled $0.4 trillion at year-end 1974 (see the figure below). At this modest start, private-sector defined benefit (DB) plans accounted for 35 percent of the total; federal, state, and local plans for 34 percent; private-sector defined contribution (DC) plans for 17 percent; annuities for 13 percent; and there was a mere glimmer of IRA assets by year-end. Currently, total U.S. retirement assets are $23.0 trillion, and their composition has shifted considerably over the past 40 years.

European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June

By Chris Plantier

July 18, 2014

As we discussed in March and April, European banks have generally become less willing to borrow from U.S. money market funds due to regulatory pressures, especially at the end of the quarter. Specifically, the new Basel III requirements seek to increase capital ratios of banks and explicitly limit how much banks fund their operations through short-term borrowing (which includes short-term securities banks issue that money market funds invest in). This quarter-end effect was particularly strong at the end of June as European bank regulators continued to monitor bank progress toward meeting the new Basel III requirements, which will be fully phased in over the next few years.

Some Facts About Roth IRAs and the Investors Who Use Them

By Todd Bernhardt

July 17, 2014

Since the individual retirement account (IRA) was created as part of the Employee Retirement Income Security Act of 1974 (ERISA), it has become a resounding success, accounting for the largest pool of assets in the U.S. retirement market. By the end of 2013, Americans held $6.5 trillion in IRAs, with 45 percent of that total—$3.0 trillion—invested in mutual funds.

Industry Leaders Reflect on Serving Investors in an Evolving World

By Christina Kilroy

June 4, 2014

Speaking on the Leadership Panel held Wednesday, May 21, at ICI’s General Membership Meeting (GMM), fund industry leaders agreed that challenges as well as opportunities abound for their businesses in today’s complex world.

GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens

By Todd Bernhardt

May 21, 2014

The fund industry needs to stop focusing on the moment and start focusing on outcomes when advising investors on their resources, said Laurence D. Fink, chairman and CEO of BlackRock, at ICI’s Annual Policy Forum, part of the Institute’s 56th General Membership Meeting (GMM).

Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort

By Chris Plantier

April 16, 2014

The March money market fund holdings data indicate a large drop in the share of fund assets allocated to European counterparties and a large increase in the share of fund assets allocated to U.S. counterparties. This shift is likely temporary and reflects reduced willingness of European banks to borrow from money market funds at the end of the quarter, rather than reduced demand from money market funds. Also, the increase in lending to U.S. counterparties is almost entirely due to the large increase in money market fund lending to the Federal Reserve via its overnight reverse-repo (repurchase agreement) facility.

U.S. Prime Money Market Funds and European Borrowing

By Chris Plantier

March 18, 2014

European holdings by U.S. prime money market funds have fluctuated significantly since early 2011.

Washington: Put Your (Retirement) Money Where Your Mouth Is

By Mike McNamee

March 4, 2014

When President Obama announced a new effort to expand access to retirement savings opportunities, ICI was among the first to applaud. The Administration’s “myRA” looks to provide a new option for Americans who want to put money aside for retirement, but who might not have access to a retirement plan through their workplace. These accounts would complement the wide array of investment options already available to these workers.

Money Market Funds and Liquidity Ratios: Why So High and Stable?

By Chris Plantier

February 19, 2014

Second in a series of posts about ICI’s new data release, a monthly compilation and summary of portfolio data from taxable money market funds. To find out more, read the first post about the new data summary or this list of answers to frequently asked questions.

The SEC’s 2010 money market fund reforms require taxable funds to hold at least 30 percent of their assets in securities that are deemed to be liquid within five business days (known as weekly liquidity) and at least 10 percent of their assets in securities that are deemed to be liquid in one business day (known as daily liquidity). In practice, money market funds—especially government money market funds—hold liquidity well above these minimum standards, and these ratios change very little in any given month.

ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds

By Chris Plantier

January 21, 2014

The 2010 reforms to money market mutual funds greatly enhanced the transparency of these funds, giving regulators, analysts, and investors greater insight into important elements of funds’ holdings and operations.

The reforms required funds to disclose their entire portfolio holdings to the public on their company websites five business days after the end of each month. Money market funds also are required to file a more detailed disclosure—SEC Form N-MFP—with the Securities and Exchange Commission directly. The SEC releases this more detailed data to the public 60 days after it’s filed. The SEC does not, however, summarize the data, leaving the public with no non-commercial access to a broad look at holdings across the industry.

America’s Retirement System Is Strong

By Sarah Holden

December 18, 2013

One year ago, ICI released its landmark study, The Success of the U.S. Retirement System, a compilation of research from a wide range of sources, which found that the country’s retirement system is fostering economic security in retirement for Americans across all income levels.

ICI’s Guide to Avoiding a Common 401(k) Tax Trap

By Mike McNamee

December 9, 2013

A tax trap for retirement savings is catching many smart people unaware. If allowed to go unchecked, it could harm the retirement savings of millions of Americans. A columnist for the Washington Post was just the latest in a long list of victims.

Revenue Estimates of Restricting Tax Deferral: It Ain’t Necessarily So

By Peter Brady

September 20, 2013

Fifth in a series of posts about retirement plans and the policy proposals surrounding them.

In previous Viewpoints posts, I explained that retirement contributions are neither tax deductions nor tax exclusions, but rather are tax deferrals. I also explained why, in my opinion, the two most prominent proposals to restrict qualified deferred compensation are flawed (post three and post four).

Tax Reforms Should Not Favor DB Plans over DC Plans

By Peter Brady

September 19, 2013

Fourth in a series of posts about retirement plans and the policy proposals surrounding them.

In The Tax Benefits and Revenue Costs of Tax Deferral and in two previous Viewpoints posts (post one and post two), I explained the benefits that workers get from deferring tax on compensation set aside for retirement.

A ‘Modest’ Proposal That Isn’t: Limiting the Up-Front Benefits of Retirement Contributions

By Peter Brady

September 18, 2013

Third in a series of posts about retirement plans and the policy proposals surrounding them.

In two previous Viewpoints posts (post one and post two), I explained the benefits that workers get from deferring tax on compensation set aside for retirement.

Marginal Tax Rates and the Benefits of Tax Deferral

By Peter Brady

September 17, 2013

Second in a series of posts about retirement plans and the policy proposals surrounding them.

In a previous Viewpoints post, I discussed the difference between tax deferral—the tax treatment applied to retirement savings—and tax deductions and exclusions, such as the mortgage interest deduction or the exclusion of employer-paid health insurance premiums from income. The difference is often overlooked or misunderstood, leading to inaccurate analysis and harmful policy proposals.

Retirement Plan Contributions Are Tax-Deferred—Not Tax-Free

By Peter Brady

September 16, 2013

First in a series of posts about retirement plans and the policy proposals surrounding them.

In today’s fiscal and political climate, taxes are never far from politicians’ minds. Whether to achieve comprehensive tax reform or to raise revenue to meet budget deficits, members of Congress are now considering changes to a range of tax code provisions—including those governing retirement policy. Any comprehensive effort to address fiscal policy or tax reform should examine every option, but some discussions of retirement policy have been misguided. The tax treatment of retirement savings—tax deferral— too often has been lumped together with tax deductions (such as the deduction from income of mortgage interest expense) and tax exclusions (such as the exclusion from income of employer-provided health insurance premiums).

Get a Closer Look at Closed-End Funds

By Daniel Schrass

July 30, 2013

ICI has recently updated several of its key closed-end funds resources.

Key Points to Remember on Fund Fees

By Sean Collins and Bob Grohowski

July 12, 2013

Over the past two decades, investors have paid less and less to own shares of mutual funds.

GMM Panelists Discuss Retirement Savings and Financial Education

By Miriam Bridges

May 17, 2013

Americans need greater access to savings vehicles and better financial education to help ensure that they use them effectively, fund industry experts told attendees at the 55th Annual General Membership Meeting.

At GMM Policy Forum, Secretary of Education Duncan Offers Steps to Address Education Crisis

By Miriam Bridges

May 9, 2012

America faces a skills crisis and other deep challenges in education, said U.S. Secretary of Education Arne Duncan at the annual GMM policy forum, part of ICI’s 54th General Membership Meeting. In a conversation with ICI President and CEO Paul Schott Stevens, Secretary Duncan offered a range of ways to address these challenges, including specific recommendations for the fund industry.

Read more…

TOPICS: Events Investment Education

‘One Size Fits All’ Doesn’t Fit Today’s Fund Investors

By Brian Reid

August 16, 2011

David F. Swensen is the chief investment officer of Yale University and a noted author of investment advice for the public. In books and articles over the last decade, he’s focused much of his attention on mutual funds. Yet he consistently ignores or is unaware of basic facts about how mutual funds operate, how investors seek and use funds, and how individuals manage their portfolios—gaps on full display in his latest commentary in the New York Times last weekend.

Check Your Savings Goals Next Week

By Sue Duncan

February 16, 2011

“America Saves Week” kicks off this Sunday, February 20. ICI and the ICI Education Foundation(ICIEF) encourage Americans to use the week as an opportunity to assess their savings activity and savings goals.

Read more…

TOPICS: Investment Education

SUBSCRIBE

Popular 529 Savings Plans Expand to Reach Students of All Ages

By Christina Kilroy

2017 Tax Reform Expands Usefulness of 529 Plans

Section 529 Savings PlansYear-end, selected years

Why 529 Savings Plans Are Growing

Invest in Your Future Through an IRA

By Christina Kilroy

Autumn Air, Playoff Baseball, and…National Retirement Security Week

By Christina Kilroy

It’s National 401(k) Day!

By Sarah Holden

New ICI Paper Helps Readers Understand ETF Listing Processes and Standards

By Jane Heinrichs and Kenneth Fang

A 529 Day Primer: Do You Know What State Your College Savings Plans Are In?

By Christina Kilroy

ICI Study: Closed-End Fund Assets Were $262 Billion at Year-End 2016

By Shelly Antoniewicz

ICI Staff Take Local Students on an “Investing Road Trip”

By Christina Kilroy

Three Reasons Why You Should Consider an IRA

By Sarah Holden

Getting Started in a 401(k) Plan—and Getting the Most Out of It

By Christina Kilroy

Mutual Fund Investments in Private Placements: an Overview

By Gregory M. Smith

How Millennials Are Shaping the Evolution of Investment Advice

By Christina Kilroy

Federal Reserve Reverse Repo Facility Helps Stabilize Short-Term Money Markets

By Chris Plantier

On Fiduciary Rule, New York Times Relies on Fatally Flawed Research

By Paul Schott Stevens

Happy Birthday ERISA! Congratulations on 40 Years

By Sarah Holden and Elena Barone Chism

European Banks Significantly Reduced Borrowing from U.S. Money Market Funds in June

By Chris Plantier

Some Facts About Roth IRAs and the Investors Who Use Them

By Todd Bernhardt

Industry Leaders Reflect on Serving Investors in an Evolving World

By Christina Kilroy

GMM Policy Forum: BlackRock’s Larry Fink Speaks with ICI’s Paul Stevens

By Todd Bernhardt

Seasonality, U.S. Money Market Funds, and the Borrower of Last Resort

By Chris Plantier

U.S. Prime Money Market Funds and European Borrowing

By Chris Plantier

Washington: Put Your (Retirement) Money Where Your Mouth Is

By Mike McNamee

Money Market Funds and Liquidity Ratios: Why So High and Stable?

By Chris Plantier

ICI’s New Data Release: Further Enhancing the Transparency of Money Market Funds

By Chris Plantier

America’s Retirement System Is Strong

By Sarah Holden

ICI’s Guide to Avoiding a Common 401(k) Tax Trap

By Mike McNamee

Revenue Estimates of Restricting Tax Deferral: It Ain’t Necessarily So

By Peter Brady

Tax Reforms Should Not Favor DB Plans over DC Plans

By Peter Brady

A ‘Modest’ Proposal That Isn’t: Limiting the Up-Front Benefits of Retirement Contributions

By Peter Brady

Marginal Tax Rates and the Benefits of Tax Deferral

By Peter Brady

Retirement Plan Contributions Are Tax-Deferred—Not Tax-Free

By Peter Brady

Get a Closer Look at Closed-End Funds

By Daniel Schrass

Key Points to Remember on Fund Fees

By Sean Collins and Bob Grohowski

GMM Panelists Discuss Retirement Savings and Financial Education

By Miriam Bridges

At GMM Policy Forum, Secretary of Education Duncan Offers Steps to Address Education Crisis

By Miriam Bridges

‘One Size Fits All’ Doesn’t Fit Today’s Fund Investors

By Brian Reid

Check Your Savings Goals Next Week

By Sue Duncan

Section 529 Savings Plans
Year-end, selected years