I’ll never forget the first cold dash of reality around the challenges of saving for college. Newly returned to work from my maternity leave after the birth of my first son, I was welcomed back by a senior executive who said to me, “You know you’ll have to start saving $800 a month right now if you want to send him to a private college, right?” If I wasn’t feeling worried enough about the challenges of parenting, well, that did it.
Needless to say, we didn’t start saving $800 a month…but we did start saving. A little at a time as we adjusted to the expenses of childrearing, and more as he and his brother and sister grew and the day care bills disappeared.
And as it turns out, that’s how most people save.
At Ascensus, we administer over 4 million 529 accounts, providing us with a very good view on how families use 529s to save for college. Unsurprisingly, the vast majority are NOT starting an $800 automatic monthly contribution upon the birth of a child! Here’s what they are doing:
On average, 529 savers are:
- Opening an account with a lump sum of about $3,800. Most 529 plans allow accounts to be opened with small contributions of $25 or even less, but in general it looks like account owners are saving up in another vehicle or receiving a large gift and then investing in a 529.
- Contributing a little at a time, over a long period of time. Ascensus processes millions of 529 contributions each year; about 60% of those contributions are $100 or less. Only a small percentage are greater than $500.
- Saving enough to fund about 43% of an in-state, public university. Accounts that grow to cover the cost of an average private university are few and far between.
- Increasingly using gifting tools to help them save. Across our 529 plans – Ascensus expects to process over $250 million in 529 gifts in 2019 through our Ugift platform.
The benefits of starting early
Nearly half of Ascensus-administered accounts were opened when the beneficiary was 5 or younger. The good news for those account owners is that this advanced planning can potentially get them much closer to their savings goals. When we look at accounts with beneficiaries age 16-17, those accounts that have been open at least 11 years have an average balance of over $44,000. Accounts opened 5 years or less for this same age group have accumulated significantly less, on average, about $26,000.
That first son just graduated from college – on the same day that his brother graduated from college 500 miles away! Thanks to their 529s, we were able to help them meet their education goals. It certainly wasn’t the straight-line formula that was laid out to me 22 years ago, but then what aspect of parenting conforms to a straight-line formula?