USA is currently going through a difficult phase, its economy marred with recession, unemployment and uncertainty. However, one thing that is certain even now is the importance of higher education. Saving for education remains a top priority for Americans even amidst economic decline says Edward Jones.
According to the 12th annual 529 awareness survey in collaboration with Morning Consult, Edward Jones stated that 55% of US citizens see education as a necessity and save for it. Over the past two years, there has been an increase in respondents’ intentions to contribute to education expenses. This is particularly accurate among individuals aged 18 to 34, Hispanic adults, individuals who are parents, parents with children under the age of 13, and parents with children attending college.
Despite the widespread recognition of the importance of education, a significant portion of adults feel they are not saving enough, and they express a desire for tools that can alleviate this burden. Interestingly, the types of savings tools people use have remained unchanged, regardless of fluctuations in interest rates.
While the temporary suspension of student loan payments, which commenced in March 2020 and is set to conclude in June 2023, has not significantly impacted saving habits, individuals seem to have other pressing saving priorities. This is evident as most people indicate that they do not intend to modify their savings, even in light of the possibility of student loan forgiveness.
However, the survey stated that the number of respondents who correctly identified a 529 plan as an education savings tool has reached its lowest level since 2020, with only 34% correctly recognizing it compared to 45% previously.
Steve Rueschhoff, Principal of Managed Investments and Insurance at Edward Jones, expressed his concern about this decline in awareness, despite the positive trend of prioritizing education savings. He emphasized that changes in federal and state laws have expanded the usage of 529 plans, making them more beneficial to a wider range of individuals, enhancing their opportunities for education and advancement.
A 529 plan is an educational savings plan sponsored by the state, which can be utilized for various educational expenses such as higher education, trade schools, apprenticeships, and in certain states, even elementary, secondary, and religious schools. These plans provide account owners with tax advantages, as well as flexibility and control over the funds.
Extending the advantages of 529 plans beyond basic expenses can serve as an effective savings tool that many individuals have been seeking. Alongside the tax benefits, 529 plans offer generous contribution limits and allow contributions from anyone. Although these plans primarily target qualified education expenses, they offer reasonable flexibility. Establishing a savings plan for education is crucial as it enables families to plan for the future and stay committed to their saving objectives.
Financial advisors can play a crucial role in ensuring that Americans understand the advantages of 529 plans and assist them in developing a comprehensive strategy to cover education expenses. According to a survey, nearly one in four adults believes that working with a financial advisor would increase their confidence in making financial decisions.
The survey also revealed that once individuals become aware of the various benefits, their interest in enrolling in a 529 plan increases. This highlights an opportunity for financial advisors to educate people about these strategies.
Particularly noteworthy is the recent passage of the SECURE 2.0 Act, which allows 529 account owners to transfer unused assets into a Roth IRA for the beneficiary. This provision will be effective in 2024 and is subject to specific criteria and limits. More than a third of investors stated that the ability to roll over unused 529 assets to a Roth IRA makes them more likely to enroll in a 529 plan.
Other benefits that contribute to the inclination to use a 529 plan include the tax advantages (37%), the flexibility to manage the 529 account (35%), and the option to use it for qualified education expenses at eligible universities (33%).
Since the COVID-19 pandemic began in 2020, there has been a noticeable decrease in the number of Americans saving money for a traditional four-year college experience. The current economic situation has further affected education plans, leading more individuals to consider cost-effective alternatives for pursuing higher education.
Approximately 23% of adults are now contemplating online-only college programs, while 22% are considering community college, as opposed to the traditional in-person university option chosen by 16%.
In 2021, awareness of 529 plans declined, but it bounced back in 2022, with 40% of survey participants indicating familiarity with these plans. To encourage more individuals to utilize these accounts for educational savings, it is crucial to communicate the benefits of 529 plans more effectively. This is particularly important as a significant number of people, approximately one-quarter, are searching online for information about tax advantages associated with educational savings.
One specific benefit that can incentivize education savings is the ability to reallocate unused funds. The 529 survey revealed that 33% of adults would save more if they had a better understanding of how they can use the unused savings.
While there are several reasons why people choose not to utilize 529 accounts, such as a lack of perceived value or misconceptions about their usage, it is worth noting that 40% of respondents did not provide a specific reason for not using these accounts. This suggests the existence of an unidentified barrier to increasing the adoption of 529 accounts for education savings.
Saving for education remains a top priority for Americans even amidst economic decline says Edward Jones. The survey also revealed a potential connection between considering affordable college options and a lack of confidence in current education savings. About 44% of adults admitted that they are not saving enough for future education expenses, especially given the rising costs of higher education and economic pressures.
Given the circumstances, Americans are understandably gravitating towards more economical education choices. As stated by Rueschhoff, it is crucial to be aware of all available education savings options, including the benefits of a 529 plan. Many investors are unaware that 529 plans can be used not only for college education costs but also for K-12 education, community college, and trade schools.
To raise awareness about 529 plans and education savings strategies, Edward Jones has partnered with EVERFI on its Financial Fitness program, aiming to promote long-term financial stability. Since 2020, this initiative has helped over 500,000 learners enhance their financial knowledge, halfway toward its goal of reaching one million learners by the end of 2025.
Edward Jones branches across the United States are designating May 29 as Save for Education Day to support the firm’s objective of raising awareness for 529 plans and education savings.
Source: Edward Jones 12th Annual Survey