A lot more Americans would put more money into Section 529 plans if they understood their benefits, according to a new survey by Alliance Capital.
The survey polled participants before and after an educational session on 529 plans. Before, just 9% of the sample group said they would use 529 plans. After the savings plans were explained to the same group, 51% said they would be more inclined to use them to save more for college. A greater majority said they would be more likely to save because of the new provisions for 529 plans under the Tax Act of 2001 (62%) and estate planning benefits (58%).
Effective Jan. 1, 2002, earnings from 529 plans will be tax-free when withdrawn to pay for qualified education expenses. From an estate-planning perspective, people can contribute up to $50,000 per child tax free without surrendering control of the money.
Educating clients about 529 plans could reassure many of them, as most adults believe college costs will be three times greater than their savings.
Consider a glimpse of the college-savings picture:
- The median amount saved for a childs education is $5,000, a large increase from last years $1,000 savings.
- The median amount people expect to save is $20,000, compared to nearly $22,000 last year.
- Similar to last year, 48% of surveyed parents are saving on a regular basis for their childrens college education and 25% of grandparents are saving for their grandchildrens schooling.
- In all, 64% surveyed said they would need financial help from other sources to pay for college. Moreover, 63% expect to receive some financial aid, 68% plan to apply for a loan, and 57% believe their children would have to work to pay for their education.
Harris Interactive conducted the Alliance Capital College Financial Preparedness Poll last month.