College hat, diploma and money

Assets in 529 savings plans and prepaid tuition plans climbed to record levels in 2017. According to the College Savings Plans Network (CSPN), 529 plan assets grew 16% from the prior year to $319.1 billion as of year-end 2017, while the number of accounts rose 3% to 13.3 million. The average account size also grew, swelling 12.5% to $24,057.

“We’re seeing a steady and sustained increase in overall growth of 529 plans, demonstrating that more American families than ever are prioritizing college savings and their academic future,” said James DiUlio, chair of CSPN.

The CSPN data covers 107 savings and prepaid tuition program across the country.

Ahead of May 29, known in the college savings world as 529 Day, many states are holding contests to give away money to be invested in 529 plans. CSPN has an interactive graphic for families to get the lowdown on their individual state’s offering.

Arizona and Indiana, for example, will be awarding $529 each to their contest winners. Colorado is holding a $2,000 sweepstakes paid for by FirstBank, which runs its FDIC-insured 529 fund in partnership with CollegeInvest.

(Related: Families Saving More for College but Not Necessarily With 529 Plans)

These plans want to encourage college savings and inform families about the benefits of this particular savings vehicle, the primary one being its tax advantages. Deposits into 529 plans grow tax-free, and withdrawals are tax-free so long as they’re used for qualified education expenses, which include tuition as well as room and board. Those tax benefits are national so families can receive them even if they have 529 plans based out of state.

(Related: Less Than a Third of Americans Know What a 529 Plan Is: Edward Jones)

In addition, contribution limits for 529 plans are often in the hundreds of thousands of dollars, but contributions above $15,000 in one year or $75,000 over five years could involve gift tax consequences.

(Related: 15 Lowest Cost 529 College Savings Plans)

Contributions to 529 plans are not tax deductible for federal tax purposes, but seven states allow state tax deductions for a contributions to 529 plans: Arizona, Arkansas, Kansas, Minnesota, Missouri, Montana and Pennsylvania — and some states will partially match contributions.

Starting this year, families can use 529 plans to help pay for primary and secondary private education in addition to a college education, which can be at a public or private institution.

Could this expansion of 529 tax benefits mean less money saved for college? DiUlio suggests that won’t happen if families make regular contributions to their 529 plans and if they replenish any funds withdrawn for K-12 education-related expenses “so they can be used for educational related expenses down the line.”