As the cost of college soars and many state institutions are charging as much as $36,000 a year for out-of-state students and private college costs approaching more than $50,000 a year, the percent of total costs families say they are able to cover themselves has fallen.

It’s down to 16% this year, compared to 24% of costs in 2007.

You would think that with numbers like that, setting up a 529 tax-deferred dedicated college savings plan would be one of the first thing a financial advisor would suggest in helping a family with its investment planning.

Yet Matt Golden, head of advisor 529 business at Fidelity Investments says that, remarkably, in only 38% of cases do advisors recommend that parents set up a 529 college savings plan for their children.

“Clearly advisors need to step it up and pay more attention to this,” said Golden, who just completed Fidelity Investment’s Fifth Annual College Savings Indicator (CSI) study.

In an interview with Financial Planning, Golden said even if the compensation for assisting clients with a 529 plan is low, “advisors are supposed to be helping families plan for all their financial needs, and planning for college is part of that.”

Even if many advisors are failing to suggest 529 plans, Golden said families who use advisors are much more likely to have them than those families who do not enlist the help of a financial planner.  Of those families who use a financial advisor, 56% invest in dedicated college savings plans, including 529s. This compares to just 28% of families who do not use an advisor. 

Of those families that do save for their children’s higher education using dedicated college plans 61% of those using advisors save systematically, compared to just 51% of those without an advisor.

Also important, those families using advisors appear to save more for their children’s education, with 31% saying they are “on track” to cover all costs, compared to only 16% who don’t use an advisor.

Golden said the most common question parents have when considering a 529 plan is whether it might be self-defeating, with the saved money simply meaning that their child or children won’t be eligible to receive need-based scholarships. 

“For most people, that just isn’t the case,” says Golden, who explains that these savings plans are in the parents’ names, and colleges only require 5.46% of parental savings to be used as the parental contribution to college tuition.

The one issue that can deter potential savers is that if a 529 plan is not used for tuition. If the child decides not to attend college, and the fund has to be liquidated, the federal government assesses a 10% penalty and taxes the all the gains, Golden said.



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