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Thoughts on Participation in 529 Plans

By Mary Morris
CEO, Virginia529
December 18, 2012

Last week, the US Government Accountability Office (GAO) released a report about participation in 529 plans across the country.  We appreciate the focus on 529 plans and attempts by the GAO to understand the industry by talking to 529 sponsors and partners.  The Report contains some interesting findings and food for thought.  But, there also are data points in the Report that merit additional context and attention. 

A key point highlighted in the GAO Report focuses on low participation in 529s. We believe it important to focus on the impact, importance and benefit to - and true participation by – American families.  The GAO Report found that less than 3% of American families saved in a 529 (or Coverdell) in 2010, this, however, was an extremely broad definition of household.  The participation rate increases to 15% when looking at Households with Children under Age 18 according to recent U.S. Census data and a 2012 Financial Research Corp. (FRC) 529 Industry Report.  Certainly, 529 sponsors are working to increase participation in their plans, but considering the relative youth of 529 plans generally and challenges to the general economy in recent years, we think there is much to celebrate in the 15% figure. 

The Report also focused on household income of 529 participants and found that families with 529 accounts and Coverdell accounts had “much more wealth” than those without such accounts (which may mean these are families who have made saving generally, and specifically for higher education, a priority) but the Report also noted that the median household income of families with a 529 account is $142,400.  The FRC Industry Report noted above had a similar finding, with some additional important detail – 35% of accounts are in households with less than $50,000 in income, 57% in households below $150,000 and 81% in households below $250,000.  In fact, it is these middle and upper middle income households which struggle to pay for college – they are without the resources to pay for college from current assets and have incomes too high to qualify for much need-based aid, except for loan packages. 

529 plans must keep families focused on the importance of higher education and find ways to further educate families about the benefits of 529 plans to help make college more affordable and accessible.  To paraphrase a comment posted to a Chronicles of Higher Education article on the GAO Report, shouldn’t we focus more on encouraging families to take advantage of the benefits of 529 plans and less on who isn’t participating.  The benefits of utilizing 529 plans are real and substantial and millions of American families are taking advantage of those opportunities.  The task of 529 plans across the country is to re-double our efforts to educate families through outreach efforts to increase participation in 529 programs by all families.   

About the Author:

Mary G. Morris is CEO of Virginia529, the independent state agency which sponsors Virginia’s four tax-advantaged 529 college savings programs, including a prepaid tuition program, two direct-sold savings programs and one adviser-sold savings program.  As of November 30, 2012, Virginia529 has more than $38 billion in assets under management across its four programs in over 2.2 million active 529 accounts across the country.  Morris serves as a member of the Executive Board of the College Savings Plans Network (CSPN) and Co-Chair of the CSPN Federal Initiatives Committee.  For more information about Virginia529, visit www.Virginia529.com or call toll-free at 888-567-0540.     


  1. I live in South Dakota which has no state income tax. Are there obvious advantages to a 529 plan in this situation? Also, is it prudent to save for a child's education when still paying off student loans of my own? Thanks!

    1. 529 plans are federally tax-deferred and when used to pay for qualified higher education expenses the earnings on the plan are tax-exempt at the federal level. Additionally, many plans offer other benefits such as the account being excluded from state aid programs, bankruptcy protection and matching grants based on contributions. You should check with the plan in your home state to determine what benefits they offer.

      The decision to save for the future college expenses of your children versus paying off a student loan is one that many parents face each year. There is no right or wrong answer and personal circumstances often lead to divergent decisions. One thing to note, researchers at the Center for Social Development at Washington University in St. Louis have found that children who have a dedicated account for college, such as a 529 plan, are seven times more likely to go to college than children without an account. Opening a 529 plan for your children and making them a part of the process by talking to them about the account and the sacrifices the family is making to save for their college education sets an expectation that they will one day go to college and earn a degree.

  2. Hello Mary, very intelligent post, i must say. I think, this particular plan released by the Government is so effective for almost all the people and especially for those ones who want to go for the higher educations and looking for the education loans.


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