529 Plans Remain an Unknown Option Among Investors

College savings plans have received a lot of attention in the industry lately as firms continue to launch and begin marketing their programs, but the plans have yet to grab the attention of the retail investor.

According to a recent nationwide survey of 1,000 individuals conducted by Schoolhouse Capital, State Street Corp.’s college planning subsidiary, 81.2% of the respondents have never heard of 529 plans at all. And only 12.5% knew that withdrawals from 529 plans are tax-free when used for college tuition, the plans’ most attractive feature.

The survey also found that individuals are unaware of the rising costs of college tuition.

Over the past 10 years, tuition for four-year public colleges increased more than three times as much as personal income did, according to Schoolhouse. However, 42.2% thought that either there was no change or that it was less, according to the survey. On average, tuition for public colleges increased 7.7% in 2001, compared to an increase of 4.4% in 2000. Still, only 27% responded that they thought tuition had "increased a lot," Schoolhouse said.

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Money Management Executive
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