College has gotten expensive. The average cost of tuition for a public college was $9,834 in the 2022-2023 school year and $40,713 for a private nonprofit college, according to the Department of Education.
As the cost of college has increased, so has the usage of 529 plans — tax-advantaged investment accounts used to pay for education expenses. In 2008, the value of all 529 plans was $105 billion. By 2024, that amount roughly quintupled to $508 billion, according to the Investment Company Institute and the College Savings Plan Network.
The Motley Fool has compiled key 529 plan statistics to see just how popular these accounts have become and how much parents are relying on them to fund their children’s higher education.
529 plan basics
Here are the basics of a 529 plan:
- They are funded with after-tax dollars, but gains are tax free, and withdrawals for qualified educational purposes are not taxed.
- Initially designed solely for paying for higher education, they can now be used for a variety of education expenses.
- 529 plans are state sponsored, but you are not required to invest in a plan run by the state you live in. You are free to invest in any state’s plan, although some offer incentives for residents.
- There are two types of 529 plans for those who intend to use the account to pay for college: prepaid tuition plans and savings plans.
- Prepaid tuition plans allow the funder to pay tuition at a specific college or university system ahead of time, which could be beneficial if the cost of tuition is expected to increase by the time the beneficiary attends the school.
- Savings plans allow the funder to invest in various funds and offer more flexibility for how those funds are eventually used.
For a deeper dive into how 529 plans work, check out The Motley Fool’s explainer.
Average 529 college savings plan contribution
The average amount of tuition paid for by a 529 plan is $2,438, about 9% of the overall cost of attendance, according to Sallie Mae.
That’s slightly less than the value of borrowed contributions from both parents and students, which includes loans, and about a third of the value that parents contribute via other nonborrowed means, like savings or other investments.
