College savings plans work to spur interest

Prizes! Drawings! Free tickets! A promotion for a carnival, or a used car blowout sale? Nope. It’s the sponsors of 529 college savings plans running contests in hopes of driving up participation.

May 29 was the annual “529” National College Savings Day, when the state-sponsored, tax-advantaged savings plans held a variety of events to stir up interest. North Carolina’s plan, NC 529, held a drawing for a deposit of $1,529 into a winner’s account. And Nebraska’s Nest 529 plan offered $100 bonuses for new accounts opened by the end of the month. And Georgia’s Path2College plan donated gifts of $1,529 to two babies born May 29.

Other offers are more modest. The California ScholarShare 529 plan offered a $50 match for all deposits into new accounts from May 29 to June 1. And Tennessee gave $25 matching gifts for new accounts, plus offering the chance to win four tickets to attractions like the Tennessee Aquarium.

The College Savings Plans Network, an industry group, offers an online map with links that detailed the offers in each state.

All states but Wyoming now offer some type of 529 plan, as does the District of Columbia. The plans allow families to invest in an account that grows tax-free. The money is also withdrawn taxfree, as long as it is spent on eligible expenses like tuition, fees and other costs, including room and board, books and equipment. (A few plans, known as prepaid tuition plans, work a bit differently.) For more details, a good resource is savingforcollege.com.

Rules for 529 plans were established by Congress in 1996, and the plans began growing more quickly after 2001, when withdrawals were made tax-free. Balances in the accounts have reached record levels, according to the latest data. The number of accounts grew 3 percent in 2017, while total assets in the plans rose to $319 billion in 2017, a 16 percent increase over the prior year. The average account is now worth $24,000.

Yet the public’s awareness of the plans remains somewhat muted — hence, the annual spring campaign.

A survey by the investment firm Edward Jones found that fewer than a third of Americans could correctly identify a 529 plan as an education savings tool, although more affluent people were more likely get it right. The survey of 1,004 adults was done by landline and cellphone in April. (Edward Jones offers “adviser sold” 529 plans, which include professional advice as well as extra sales fees or commissions. Most states offer plans that consumers can enroll in directly, without paying sales fees.)

James J. Burns, a financial planner on Long Island and an ambassador for the Certified Financial Planner Board of Standards, said some families have misconceptions about 529 plans. For instance, he said, they may worry about what will happen to their savings if their child doesn’t go to college. But the plans are flexible, he said. If a child chooses not to go to college, the money can also be used for vocational schools. Or the money can be used for another child or relative. (If 529 funds are withdrawn for noneligible purposes, the earnings — but not the original contributions — are generally taxed as income, plus a 10 percent penalty.)

Jim DiUlio, chairman of the College Savings Plans Network, said he expected that younger adults — many of whom had part of their college tuition funded with a 529 plan set up by their parents — will in turn open 529 accounts for their own offspring. Starting this year, up to $10,000 a year from a 529 fund can be used to pay for private school from elementary school onward.