GAO report - Section 529 plans  

December 12: The U.S. Government Accountability Office (GAO) today released a report—A Small Percentage of Families Save in 529 Plans, GAO-13-64 (December 12, 2012)—concerning section 529 plans.

Background

Section 529 plans (or 529 plans) are intended to encourage families to save for college, by allowing earnings from 529 plans to grow tax-deferred and be exempt from federal income tax when they are used for qualified higher education expenses.


In fiscal year 2011, the Treasury Department estimated that 529 plans represented $1.6 billion in forgone federal revenue.


There are over 100 plans under section 529 that are managed by states, as of July 2012. The number of 529 plan accounts and the amount invested in them has grown during the past decade.


GAO was asked to describe: (1) the percentage and characteristics of families enrolling in 529 plans; (2) plan features and other factors that affect participation in 529 plans; and (3) the extent to which savings in 529 plans affect financial aid awards.

Summary

The GAO found that:


  • Less than 3% of U.S. families saved in 529 plans or Coverdell Education Savings Accounts (a similar but less often used college savings vehicle) in 2010.
  • Those who did participate in a 529 plan or Coverdell tended to be wealthier than others.
  • States offer a variety of 529 plan features that, along with other factors, can affect participation.
  • Some of the most important features families consider when choosing a 529 plan are tax benefits, fees, and investment options—features that can vary across the state plans.
  • To address families' ability to save, particularly for low-income families, some states have adopted plans that include less risky investments, have low minimum contributions, and match families' contributions.

Read the GAO report [PDF 3.48 MB]





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