Study: Majority of Parents/Grandparents Not Familiar With 529s

Overall, only 14% of the families polled currently invest or are planning to invest in a 529 college savings plan, up only slightly from 12% in 2002. The AllianceBernstein Investment Research and Management’s College Financial Preparedness Survey suggests that most families lack a general understanding of these plans and a large percentage are not taking advantage of their various tax-advantaged savings benefits.

This understanding is evidenced when respondents were asked why they were not using a 529 college savings plan. The top answers included:

• 44% – lack of familiarity
• 15% – not enough discretionary income
• 10% – already using another college savings product.

The apparent lack of awareness does not stop parents and grandparents though from being interested in the possibilities of a 529 plan as a vehicle for college savings. Once the tax and other benefits of 529 plans are explained, 68% of parents and 44% of grandparents are more inclined to save for a child’s college education using one of these plans.

Those considering making investments still have their reservations: namely 68% of parents and grandparents remain concerned about the possible effects of market volatility on their college savings funds. Taking market volatility into consideration, respondents expressed strong preferences for features that include:

• 81% – a plan offered by a company that will still be managing the plan when their child graduates
• 79% – portfolio diversification to guard against market extremes
• 76% – systematic rebalancing to adjust for market conditions
• 76% – age-based portfolios that become more conservative as college approaches.

The study further examined features that were “important” criteria and would make respondents “more inclined to invest.” The top eight features in terms of importance:

• 79% – an insured portfolio that protects principal against market volatility
• 77% – state tax deduction on top of tax-free withdrawals
• 75% – outside expert who reviews portfolios for correct asset allocation
• 75% – ability to put together a custom portfolio of investments
• 70% – dollar-cost averaging – regular shifting funds from one investment to another
• 69% – more than five investment options
• 68% – age-based portfolios that change as the child nears college
• 67% – ability to invest through payroll deduction

Harris Interactive conducted the survey from June 20-23, 2003 by telephone among 1,010 adults aged 18 and older.