529 Plans Climbed in 2006

June 6, 2006 (PLANSPONSOR.com) - Assets in Section 529 college savings plans have risen 38% since last year, according to a recent report, with plan assets totaling $75.1 billion, up from $54.5 billion in 2005.

College Savings Foundation (CSF) released a report by the Financial Research Corporation (FRC) about 529 plans, accounts offered on a state-by-state basis for higher education expenses that give federal income tax-free treatment to earnings and withdrawals from plan accounts.

Research also found that estimated net sales during the first quarter hit an all-time high for a single quarter, up $5.1 billion.

David Pearlman, senior vice president and deputy general counsel at Fidelity Investments and chairman of CSF, said the results of the report show that there is a high demand for tax-advantaged college savings vehicles, according to CSF.

The FRC reported that the “static” portfolio, which featured underlying investments such as a specific asset-class portfolio, was the fastest-growing category. Static portfolios increased by 47.9% since the first quarter last year. These portfolios represent more than a fourth (25.6%) of the $27.3 billion in assets under management (AUM), according to the FRC report.

Age-based portfolios – funds whose assets grow more conservative as the beneficiary reaches college age – grew at 36.2% and now contain 68.3% of the total assets, according to the report.

Individual funds, which only make up 6.1% of the assets, were the slowest-growing group, increasing only by 5.7%, according to CSF.

Load portfolios make up 62.4% of the total $27.3 billion AUM, according to CSF, and they accounted for 60% of net sales.

100% equity allocations represented the largest percentage of assets at the end of the first quarter of 2006. Their assets equal $5.1 billion and made up 23.6% of AUM, a 1.7% increase since 2005’s fourth quarter. But they only accounted for 0.4% of total sales, according to CSF.

Though there is high demand for 529 plans, their future is uncertain.

These plans are scheduled to end in 2010, and since the college class of 2010 will begin college this fall, the New York Times reported, they may lose popularity.