NU Online News Service, Nov. 16, 2:41 p.m. – Cerulli Associates Inc., Boston, says in the latest edition of its The Cerulli Report Series, “The State of the College Savings Plan Market: 529 Plans in Perspective,” that it expects 529 college savings plans to grow to more than $51 billion by 2006. This represents a compound annual growth of nearly 50%, Cerulli says.

More than 40 financial services companies currently manage or distribute 529 plans and more are expected to follow, Cerulli says.

“The rapid entry of so many providers is breeding intense competition to attract 529 assets,” Cerulli says. “This competition will, in turn, make it difficult to achieve scale and profitability in the 529 market over the short term.”

Balances in 529 plans will start out small but rapidly grow, Cerulli says. Cerulli estimates that the average 529 savings account balance at the end of 2001 will be $6,700. Cerulli projects this will grow to $15,575 by the end of 2006, for a compound annual growth rate of almost 19%.

“Account penetration rates for 529 savings plans are extremely low,” Cerulli Associates says. “Less than 1% of U.S. households with children under age 18 will own a 529 savings account by the end of 2001. This represents 1.1 million accounts. CA projects account penetration to grow to 8.2% of U.S. households with children under 18 by 2006.”