Higher Education Research Summer 2015

Excerpt: Tax-Advantaged College Savings Plans

The post below is excerpted from “The Commitment Revisited: Financial Aid and Tuition Policy in North Carolina,” a report on Public and Private Colleges and Universities and Community Colleges.

Tax-Advantaged College Savings Plans

           Tax-advantaged investment plans provide tax incentives to encourage people to save money for future college costs. They are increasingly popular as forms of state and federal government aid for students. The two most common tax-advantaged benefits offered by states are tax-free savings plans and tax-free prepaid tuition plans. Both types are commonly called “529 plans,” a term derived from their section number in the federal tax code.[1]

          In June 2013, $205 billion dollars were invested nationally in more than 11 million such accounts, with an average account size of $18,013.[2] During the Great Recession, the average value of individual 529 accounts declined 33 percent, from $13,313 to $8,944 in constant 2009 dollars over the period between December 2007 and March 2009.[3]

             Residents in all 50 states may participate in some type of 529 plan. Forty-eight states (including North Carolina, but not Washington or Wyoming) and the District of Columbia have created savings programs. These plans allow savings for college to accumulate tax-free and, if the savings are used for post-secondary education expenses, they can be withdrawn tax-free. Twelve states (not including North Carolina) have tax-free prepaid tuition plans, which are guaranteed to cover fixed portions of tuition prices in the future, regardless of tuition increases. [4] Earnings in both types of plans – savings and prepaid tuition – are not subject to federal taxes. Many states offer tax benefits in addition to those provided by the federal government, and five states – Arizona, Kansas, Maine, Missouri, and Pennsylvania – even offer tax breaks on plans sponsored by other states.[5]

              Sixteen states offer both types of 529 plans, and many states have multiple savings plans.[6] The savings plans were first authorized by Congress in 1996, and subsequent amendments in 2001 and 2006 made them more attractive to investors. The prepaid tuition plans have been around since 1988 but have been losing ground to the savings plans, which are now the most common type of 529 plan. Until July 1, 2006, prepaid tuition plans were considered assets, and this made it more difficult for students to qualify for other forms of need-based financial aid.[7] The proportion of funds in prepaid tuition plans versus savings plans declined from 81 percent of the total in 529 plans in 1999 to 31 percent in 2002, 14 percent in 2007, and 12 percent in 2012.[8]

               CFNC.org has more information on the NC 529 plan: http://www.cfnc.org/save/save.jsp

College of The Albemarle
College of The Albemarle

 

The table below reflects the 529 plans available in each state, the assets in each plan, and the number of open accounts.

529 Plan Data[9]
Reporting date: December 31, 2014
                                                                                                                    Assets Under        Open
  Program Name                                                                                      Management        Accounts *
Alabama Prepaid Affordable College Tuition (PACT) Program        $93,505,385           29,279
Alabama CollegeCounts 529 Fund – Advisor                                      $1,000,558,654      51,533
Alabama CollegeCounts 529 Fund – Direct                                         $246,773,359         16,296
University of Alaska College Savings Plan                                           $428,952,075         32,528
Alaska – T. Rowe Price College Savings Plan                                       $1,980,757,460      79,824
Alaska – John Hancock Freedom 529                                                   $4,145,067,040      160,884
The Fidelity Arizona College Savings Plan                                           $331,947,575          25,555
Arizona Ivy Funds InvestEd 529 Plan                                                   $570,862,185          42,432
Arizona Family College Savings Program                                            $66,072,670              3,220
Arkansas iShares 529 Plan                                                                     $262,299,296           7,133
Arkansas GIFT College Investing Plan                                                  $306,401,607          22,420
California – ScholarShare College Savings Plan                                  $6,145,036,732      259,227
Colorado – Stable Value Plus College Savings Plan                            $84,281,000              6,933
Colorado – Smart Choice College Savings Plan                                   $39,805,000              9,707
Colorado – CollegeInvest Direct Portfolio College Savings Plan       $2,361,669,405     112,477
Colorado – Scholars Choice® College Savings Program                   $3,598,973,346      202,197
Connecticut Higher Education Trust                                                    $2,287,110,700        98,180
Connecticut – CHET Advisor                                                                   $297,418,613           17,590
Delaware College Investing Plan                                                          $615,707,275            22,177
DC College Savings Plan                                                                         $372,456,919            18,356
Florida Stanley G. Tate Florida Prepaid College Program                $10,541,577,686     522,614
Florida College Investment Plan                                                           $396,785,300           41,264
Georgia – Path2College 529 Plan                                                          $1,730,084,750       125,460
HI529 – Hawaii’s College Savings Program                                          $67,588,592               4,295
IDeal – Idaho College Savings Program                                                $321,309,655           25,603
Illinois – Bright Directions                                                                      $1,756,568,433         93,848
Illinois – Bright Start Advisor                                                                  $1,910,452,613         82,421
Illinois – Bright Start Direct                                                                    $3,501,070,768        148,741
College Illinois 529 Prepaid Tuition Program                                      $1,049,808,226        44,873
Indiana – CollegeChoice 529 Direct Savings Plan                               $1,318,387,619       115,498
Indiana – CollegeChoice Advisor 529 Savings Plan                             $1,654,680,528       156,262
Indiana – CollegeChoice CD                                                                     $11,128,683               1,799
College Savings Iowa                                                                               $3,990,700,564       214,352
Iowa Advisor 529 Plan                                                                            $230,738,393             45,053
Kansas – Learning Quest Direct                                                            $1,779,594,785          74,624
Kansas – Learning Quest Advisor                                                          $259,757,512            17,521
Kansas – Schwab 529 College Savings Plan                                         $2,620,875,385         98,340
Kentucky Education Savings Plan Trust                                               $173,062,804            12,365
Kentucky’s Affordable Prepaid Tuition                                                 $107,700,000             5,134
Louisiana (START)                                                                                     $593,914,727           50,649
Maine – NextGen College Investing Plan                                              $8,198,520,985      293,110
Maryland College Investment Plan                                                       $4,011,928,830      185,169
Maryland Prepaid College Trust                                                            $910,147,176           34,372
Massachusetts U.Fund College Investing Plan                                    $4,792,890,734      155,866
Massachusetts U.Plan Prepaid Tuition Program                                $86,496,668               8,785
Michigan Education Trust (MET)                                                            $1,058,408,400        44,803
Michigan Education Savings Program                                                  $4,027,197,203       215,519
Michigan 529 Advisor Plan                                                                    $345,855,988             30,857
Minnesota College Savings Plan                                                           $1,165,315,918         61,176
Mississippi Affordable College Savings                                               $181,202,303             11,006
Mississippi Prepaid Affordable College Tuition Program (MPACT) $317,361,928            19,910
MOST – Missouri’s 529 College Savings Plan                                       $2,244,710,285       133,199
Missouri’s 529 Advisor Plan                                                                   $227,467,786           15,228
Montana Family Education Savings Program – Bank Plan                $107,932,854             6,977
Montana Family Education Savings Program- Investment Plan      $124,851,408             9,092
Nebraska Educational Savings Plan Trust – Direct                             $1,688,719,040         67,657
Nebraska Educational Savings Plan Trust – Advisor                          $894,486,644            62,684
Nebraska – TD Ameritrade 529 College Savings Plan                        $782,025,977            34,808
Nebraska – State Farm 529 Plan                                                            $393,311,381            60,355
Nevada Prepaid Tuition Program                                                         $202,976,066            11,379
Nevada – Putnam 529 for America                                                       $381,149,272             18,980
Nevada – SSgA Upromise 529 Plan                                                       $1,250,320,168        150,686
Nevada – The Vanguard 529 Plan                                                         $10,930,094,151       269,344
Nevada – USAA College Savings Plan                                                    $2,289,127,664         217,960
New Hampshire – UNIQUE College Investing Plan                             $9,729,615,521         401,620
New Hampshire – Fidelity Advisor 529 Plan                                        $4,345,198,164         199,393
New Jersey – Franklin Templeton 529                                                  $3,118,350,079          253,325
New Jersey – NJ BEST 529 College Savings Plans                                $1,370,571,540           72,255
New Mexico – The Education Plan                                                        $471,834,574               20,595
New Mexico – Scholar’sEdge                                                                  $1,853,789,552         122,634
New York’s 529 College Savings Program Direct Plan                      $16,743,652,122        668,836
New York’s 529 College Savings Program Advisor Plan                    $3,427,286,144          170,369
North Carolina’s National College Savings Program                         $1,599,173,468          126,594
North Dakota – College SAVE                                                                 $384,683,125               26,170
Ohio – CollegeAdvantage 529 Savings Plan (guaranteed)                 $413,521,689              41,775
Ohio – CollegeAdvantage 529 Savings Plan (direct)                           $4,109,882,600          255,171
Ohio – BlackRock CollegeAdvantage 529 (advisor)                             $4,704,511,723         350,367
Oklahoma College Savings Plan                                                            $658,434,428               44,829
OklahomaDream 529                                                                              $102,314,411                7,001
Oregon College Savings Plan                                                                 $1,157,814,885            80,121
Oregon – MFS 529 Savings Plan                                                             $1,109,474,323           72,698
Pennsylvania 529 Investment Plan                                                       $1,758,527,996           87,471
Pennsylvania Guaranteed Savings Plan                                               $1,683,291,151          103,576
Rhode Island – CollegeBoundfund                                                        $7,439,835,435           309,296
South Carolina Tuition Prepaid Program                                             $97,255,101                  5,708
South Carolina Future Scholars                                                             $2,115,422,249          105,428
South Dakota – CollegeAccess 529 Plan                                               $1,164,650,182             38,930
Tennessee BEST Prepaid Plan                                                                $82,958,730                   8,592
TNStars College Savings 529 Program                                                 $24,014,298                    6,003
Texas College Savings Plan                                                                     $329,439,540                25,978
Texas – LoneStar 529 Plan                                                                       $172,966,891                12,108
Texas Guaranteed Tuition Plan                                                             $1,030,887,347              70,819
Texas Tuition Promise Fund                                                                   $573,129,583                 28,709
Utah Educational Savings Plan Trust                                                    $7,838,689,998            263,976
Vermont Higher Education Investment Plan                                       $255,712,800                15,464
Virginia inVEST                                                                                          $2,908,421,913            186,706
Virginia – CollegeWealth                                                                          $94,581,678                  15,103
Virginia – CollegeAmerica                                                                        $47,860,620,420        2,095,618
Virginia prePAID                                                                                       $2,351,093,269              70,537
Washington Guaranteed Education Tuition                                        $2,585,617,136            127,390
West Virginia – The Hartford SMART529                                              $1,567,673,039              96,072
West Virginia – SMART529 Select                                                           $437,833,265                12,320
West Virginia – SMART529 WV Direct                                                    $184,010,480                 12,626
West Virginia – Prepaid Tuition Plan                                                      $72,419,499                    4,412
Wisconsin EdVest                                                                                     $2,177,233,403            138,039
Wisconsin tomorrow’s scholar                                                              $1,610,038,262             128,654
Private College 529 Plan                                                                         $308,465,346                   8,154
Total:                                                                                                       $247,888,839,507     12,109,028
* Please note, comparisons of “open accounts” data collected prior to 2009 cannot be
compared to this data due to a change in the data collection methodology.

 

Endnotes

[1] 26 U.S. Code § 529.

[2] “College Savings Plans Network 529 Report: An Exclusive Mid-End Review of 529 Plan Activity,” College Savings Plans Network, September 2013, p. 3. Online at: http://www.collegesavings.org/includes/pdfs/ Sept%202013%20529%20Report_FINAL.pdf. In addition to the state-sponsored plans, a prepaid tuition plan is not included in these figures. It is sponsored by more than 270 private colleges and universities and has assets of $235 million in 8 million accounts, as of June 2012.

[3] “Trends in Student Aid 2009,” The College Board, Washington, D.C., 2009, p. 18.

[4] College Savings Plans Network 529 Report, note 2 above, p. 9.

[5] “State Tax Deductions for 529 Contributions,” FinAid.org. Online at: http://www.finaid.org/savings/ state529deductions.phtml.

[6] “State Section 529 Plans,” FinAid.org. Online at: http://www.finaid.org/savings/state529plans.phtml.

[7] “History of 529 Plans,” College Savings Plans Network. Online at: http://www.collegesavings.org/history.aspx.

[8] “Trends in Student Aid 2012,” The College Board, Washington, D.C., p. 32. Online at: http://advocacy. collegeboard.org/sites/default/files/student-aid-2012-full-report.pdf.

[9] “529 Plan Data,” College Savings Plan Network, Decmber 31, 2014. Online at http://www.collegesavings.org/includes/pdfs/Dec%202014.pdf.

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