Assets in 529 college savings plans rose to an estimated $68.4 billion at the end of 2005′s fourth quarter, an increase of 31% from the fourth quarter 2004 total of $52.3 billion, according to a study by the Financial Research Corp. for the College Savings Foundation, Washington.
But in a sign that growth in plans may have peaked, the total number of new 529 accounts dropped from the year before, the study finds.
The quarterly asset total was up 7.9% from an estimated $63.4 billion at the end of the third quarter, CSF reports.
The 529 college savings plans, which are named after the Internal Revenue Code section that authorizes them, give federal income tax-free treatment to earnings and distributions from the accounts for qualified college costs. Many states sponsoring the plans also offer tax-free treatment to residents, and one state, Maine, also offers tax-free earnings and distributions to nonresidents.
Estimated net sales, or new contributions, for the fourth quarter totaled $4.1 billion, up from $3.2 billion in the third quarter but down from $4.6 billion in 2004′s fourth quarter, CSF reports.
New dollars for the year were at about $13.7 billion.
Growth of new accounts is flattening because Congress has not made 529 plan provisions permanent, notes David Pearlman, senior vice president and deputy general counsel of Fidelity Investments, Boston, who is chairman of CSF. If Congress doesn’t renew the provisions, they will expire in 2010.
“Until last year, we were seeing 40% to 50% growth rates,” Pearlman says. “Last year, new accounts were up only 15%.”
CSF is working hard to make the 529 plan tax exemption permanent, he says. One bill backed by the foundation in the U.S. House has 120 sponsors, while a similar bill in the Senate has 65, Pearlman reports.