The Rise of the 529: How to Afford College

NEW YORK (MainStreet) —With higher education costs soaring and parents and their college-bound children more worried than ever about falling into debt, so-called 529 saving plans are seeing a slow, but steady, growth among those planning for the future.

“As college costs continue to rise, families are growing more and more aware that saving for college can ease the burden of student loan debt,” said Michael Fitzgerald, College Savings Plans Network chair and State Treasurer of Iowa. “Families are learning that by planning ahead, parents, extended family members and friends can contribute to a loved one’s education.”

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The 529 plans offer parents the chance to receive investment gains that are tax free — assuming the funds are used for higher education expenses — and many states that run the plans also grant a tax credit or deduction for contributions to the savings plan.

According to a recent report by Fitzgerald’s group, total investment by families in 529 plans reached a record level of $190.7 billion in 2012 — a nearly 16 % increase from 2011, when assets were nearly $165 billion. Total number of 529 accounts also rose nearly 4%, with 11.1 million as of December 2012.

A similar report released in March by the non-profit College Savings Foundation, showed comparable results of total assets of 529 plans rising nearly 17% from 2011.

“Obviously families are seeing the importance of saving for education and starting it early,” said Roger Michaud, College Savings Foundation chair.

Michaud said one reason 529 plans have continued to gain in popularity among those looking to save for their kids’ future is the uptick the market has seen in the last four years.

“No doubt the market rebounding has helped.” Michaud said. “People are feeling more optimistic and are feeling more confident.”