Throughout the pandemic, 529 college savings plans have only grown in size, even as higher education enrollment has plummeted.
In 2021, the average account size hit a record high of $30,287, according to the College Savings Plans Network, or CSPN.
Total investment in 529 also hit a record $464.3 billion last year, up nearly 10% from 2020.
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There’s a reason these accounts have proven popular in these uncertain times: not only can you get a tax deduction or credit for contributions; earnings grow on a tax-advantaged basis, and when you withdraw the money, it’s tax-free if the funds are used for eligible education expenses such as tuition, fees, books, and housing and meals.
Currently, 34 states and the District of Columbia offer a write-off of 529 contributions as a state income tax deduction or credit, according to Morningstar.
However, it’s also important to assess the fees for each 529 plan, which may include account maintenance, asset management or other miscellaneous expenses, according to Rachel Biar, president of the CSPN. “Sometimes you have to balance plan costs with tax benefits.”
Virginia’s Invest529, one of the nation’s largest 529 plans, recently announced that it is cutting administrative costs by nearly half, effective Jan. 1.
The plan, which oversees more than 3 million accounts, also saw a record number of college savings last year.
As accounts grew, it became easier to cut costs, according to Mary Morris, CEO of Virginia529.
At the same time, “this reduction reflects our continued efforts to maintain one of the lowest 529 fee structures in the country and to provide the best chance for our families to reach their savings goals,” he said. she declared.
“It’s definitely a trend we’ve seen across the country,” she added, to the lower fees.
To be sure, average fees have dropped significantly in 529 plans since the investment program’s inception in 1996, according to Savingforcollege.com.
Now, total investment and administration fees typically range from zero to 2%, depending on how the accounts are managed. (Savingforcollege.com also offers a comparison tool and fee study, which compares the 10-year total costs of all so-called direct-selling 529 plans.)
Although Virginia’s Invest529 already has very low fees, the reduction should save account holders about $3 million in total, according to Morris.
“Every little bit counts,” she said.
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