Increasing Momentum in 529 PlansBy Paul Curley, CFA | email@example.com | May 17, 2018
529 savings plans have continued to reach year-over-year highs, improving across a wide array of metrics. The market totaled $321 billion in assets as of March 2018. Read our latest 529 Insiders article to learn more.
529 prepaid plans have not expanded as aggressively as 529 savings plans. 529 prepaid plans allocate the market risk to the state entity issuing the plan while 529 savings plans allocate the market risk to families. This is why investors familiar with the retirement industry compare 529 prepaid plans to defined benefit accounts, and 529 savings plans to defined contribution accounts.
Net flows have likewise continued to growth over successive quarters. The industry saw 1Q18 net new flows of $4.0 billion, compared to $3.2 billion in 1Q17 and 1Q16. The first quarter 2018 flows were in fact the highest the industry has seen since 2007. Additionally, the industry saw net new flows of $8.3 billion over the past 12 months ending in March 2018, compared to $7.3 billion for the preceding 12 months. This consistent trend of net deposits has appeared throughout periods of market volatility. 529 periods of net redemptions are almost entirely limited to the third quarter of each year and are based around the core usage of 529 plans as opposed to being a sign of reduced investor confidence.
While the industry has grown across both the advisor and direct channels, the increase has been even more prominent within the direct channel. Over the past year ending in March 2018, the direct channel grew 13.7% and the advisor channel increased 9.8%. The direct channel has steadily increased market share, thanks to increased awareness and understanding of 529 plans beyond intermediary channels.
As explored previously in the 529 Insiders, legislative developments including tax reform and the expansion of qualified distributions to K-12 tuition stand to further enhance the market’s growth in assets, accounts, and net new flows in the coming years. Have the college financial planning conversation with your clients today.