In 1999, less than half the states in the U.S. offered 529 college savings plans. Among those that did, investment choices were limited, maximum contribution limits were relatively low, and Web access was minimal, if it existed at all.
Today, more than $20 billion is held in 529 savings plan accounts–more than twice the assets held there last year–with the total expected to reach $32 billion by year-end and $145 billion by 2008, according to a recent study by Cerulli Associates, the Boston research firm. All 50 states and the District of Columbia offer plans, and most offer a wide variety of investment options. Many plans have beefed up their Web presences and now offer online account access or enrollment, says Luis Fleites, a Cerulli analyst who co-authored the report. And maximum contribution limits have been significantly increased. The average is $240,000, with Louisiana having the lowest limit, at $173,065, while South Dakota is highest, at $305,000.
But not everything is peachy in the land of college savings. True, the market is burgeoning, and since only 4.3% of children under 18 have opened accounts, there’s plenty of room for additional growth, says Fleites. The problem, at least for plan providers, is that it’s turned out to be very hard to make money. “A couple of years ago, providers were battling to get mandates to offer these plans,” says Fleites. “Because many different providers entered the market, a large portion of them are struggling to gain market share.” Indeed, according to Cerulli, 10 plan providers control 82% of the assets held in 529 plans, with TIAA-CREF first, Alliance Capital second, and Fidelity third. Yet even they are struggling because of low average account balances. The average account balance of $6,457 “in many cases falls short of covering administrative and operational costs,” according to Cerulli.