Only 33% of Parents Investing in 529 Plans

Only 33% of parents are investing in college savings 529 plans, and only 20% of households earning $150,000 or more are taking advantage of them, according to a Gallup survey commissioned by Sallie Mae.

“I’m surprised at how many people think everyone gets some financial aid,” financial planner Linda Leitz told Dow Jones. Of the wealthier families that are not using 529 plans, Leitz said she expects many of them are relying on the grandparents to pick up the college tab. But given the average annual $50,000 price tag at private college, Leitz said, parents may be overly optimistic about their parents’ generosity.

Even with help from other family members, nothing can beat the federal and state tax advantages of 529 plans, said Joe Hurley, founder of savingforcollege.com. To raise awareness about 529 plans, suggests Andrea Feirstein, managing director of AKF Consulting, which works with 529 plans, the industry should tout the plans’ tax advantages and low-risk choices available.

Right now, because of the market volatility, a lot of parents are investing in money market funds, she said. They would stretch their money further if they invested in money market funds within a 529 plan, she said.