Based on a proprietary survey of parents fielded in April 2023, this report provides an overview of the education financial planning landscape, 529 landscape, legislative impacts, demographic drivers, product developments, marketing initiatives, distribution enhancements and more.
ISS Market Intelligence (ISS MI), a unit of Institutional Shareholder Services and leading global provider of data, analytics, insights, media, and events solutions to the global financial services industry, today announced the release of its annual 529 Industry Analysis report. The report, now in its 14th year, provides an in-depth analysis of the state of the 529 industry as well as the decision-making and product-selection processes of individual survey respondents regarding education saving choices.
529 industry assets continue to grow, totaling $411.3 billion at the close of 2022, ISS MI data show. When comparing today’s 529 savings plan asset levels to those of 14 years ago ($88.5 billion in 2008), the growth is marked, representing a 338 percent increase, or an 11.1 percent compound annual growth rate. The main driver of this long-term growth has been annual net inflows, which remained positive even during the market downturns of 2008 and 2022, with 2008 net inflows of $5.3 billion and 2022 net inflows of $3.4 billion. However, ISS MI data show that the education savings market, defined as assets earmarked to pay for college, contracted in 2022, dropping to $1.672 trillion at year end.
Despite the slowdown in recent years due to COVID-19-related economic and investment market turmoil and subsequent economic and market volatility, growth in 529 accounts and assets is expected to continue over the next five years.
“We expect gross contributions to return to growth, based on the expansion of federal and state tax incentives and qualified expenses introduced as part of the SECURE 2.0 Act, thereby broadening 529 usage to new demographics and deepening usage among current 529 users,” said Paul Curley, Associate Director of 529 & ABLE Solutions at ISS Market Intelligence. “Moreover, this year’s survey shows a new all-time high for the percentage of U.S. family households using 529 plans at 14.2 percent, supported by new families and demographics motivated by the long-term importance of education financial planning and the prevalence of automatic savings, tax incentives, and the lower unemployment environment.”
Underpinning the 122-page report is a survey of more than 1,000 U.S. households with children under the age of 18 to help identify the decision-making and product-selection processes of individuals who were at the time of the survey either 529 users, non-529 college savers, or non-college savers.
Undertaken between April 3 and 18, 2023, the survey shows that families are saving for education and are using 529 plans, but opportunities for growth continue. The percentage of surveyed families who are saving for college decreased from 2022 at 71.2 percent to 2023 at 66.6 percent, while the percentage of 529 users decreased slightly by 0.1 percent to 26.2 percent in 2022. 529 plan users continue to save through the market and economic volatility in 2023, as evidenced by a decrease of only 0.1 percent in usage from 2022 (26.3 percent) to 2023 (26.2 percent). As a result, the percentage of those saving for college who are using 529 plans increased from 36.9 percent in 2022 to 39.3 percent in 2023, indicating that 529s are gaining momentum among those saving for education (as opposed to non-college savers).
529 plans also appear to be growing in favor for their versatility in helping a broader set of families retool in the current economic environment through an expanded definition of sanctioned programs. Notably, the December SECURE 2.0 Act expanded qualified 529 distributions to include certain types of rollovers to Roth IRAs effective 2024, building upon other recent legislative wins that expanded qualified distributions to K-12 tuition, apprenticeships, and repayment of student loans. Early market data suggests that the greater flexibility will accelerate the growth trajectory of 529s amongst current 529 users, non-529 education savers, and non-savers.To learn more about the report, please click here.