Edward Jones: Majority Of Americans Say They Can’t Afford College, Don’t Know About 529 Plan
NEW ORLEANS – Two-thirds of Americans still don't know what a 529 plan is, according to the annual 529 Plan Awareness Survey from financial services firm Edward Jones.
In its fourth year monitoring college savings awareness, the survey found that only 34% of Americans could correctly identify a 529 plan as a college savings tool from among four potential options, up slightly from 30% in 2014 but down compared to the inaugural 2012 survey at 37%. These college savings plans were first offered to Americans in 1996.
The survey also asked respondents to indicate whether or not they believe they can afford the full cost of a college for themselves or a family member. While male respondents were twice as likely to indicate "yes" than their female counterparts, 21% compared to 11% of women, overwhelmingly, 83% of Americans say they simply can't afford the cost. Interestingly, even higher income levels did little to help, with just 37% of the highest earning respondents (those making $100,000 a year or more in household income) saying they could afford the cost.
"Despite headlines focused on the increasingly high costs of college, we still see a significant number of Americans who aren't aware of one of the most important long-term savings vehicles that can help minimize the impact that the cost of education has on families," said Marigny deMauriac, an Edward Jones Advisor in New Orleans.
"Demographically, people are living longer and having children later in life, narrowing the time between a child's college bills and his or her parents' retirement age. This, coupled with the fact that the cost of college is increasing at a much higher rate than inflation, means that many are grappling with how to stay on track to meet savings goals."
Awareness varied by several factors including household income, size and number of children. Respondents with a household income of $100,000 or more were significantly more likely to correctly identify 529 plans (58%), than those with less than $35,000 (25%). Similarly, awareness also increased depending on household size and number of children. Americans with a household of three or more people reflected more awareness (40%) than those with a household of two people (30%). Surprisingly, respondents with children ages 13-17 years were actually less likely to correctly identify the college savings plan than those with children under the age of 13 (35% versus 41%, respectively).
"While the cost continues to be a major concern, Americans still recognize the value of a college education, so finding ways to manage those costs becomes paramount in the process," said deMauriac. "We need to remind them of the wide array of strategies that exist and help them put their goals into action through designing a plan that utilizes the appropriate tools in support of their savings goals."
Withdrawals used for expenses other than qualified education expenses may be subject to federal and state taxes, plus a 10% penalty. There may be state tax incentives available to in-state residents who invest in their home state's 529 plan. Student and parental assets and income are considered when applying for financial aid. Generally, a 529 plan is considered an asset of the parent, which may be an advantage over saving in the student's name. 529 plans can be complex, and should be discussed with a tax advisor and a financial aid professional, deMauriac said.
The survey was conducted by ORC International's CARAVAN Omnibus Services and was based on 1,008 landline and cell phone interviews of U.S. adults conducted April 23-26, 2015. The margin of error was +/-3%.
Edward Jones, a Fortune 500 company, provides financial services for individual investors in the United States and, through its affiliate, in Canada. Every aspect of the firm's business, from the types of investment options offered to the location of branch offices, is designed to cater to individual investors in the communities in which they live and work. The firm's 14,000-plus financial advisors work directly with nearly 7 million clients. Edward Jones, which ranked No. 6 on FORTUNE magazine's 100 Best Companies to Work For in 2015, is headquartered in St. Louis.