Magazine article American Banker

529 College Plan Assets, Withdrawals Dropped in 4Q

Magazine article American Banker

529 College Plan Assets, Withdrawals Dropped in 4Q

Article excerpt

Byline: Matt Ackermann

Fourth-quarter assets in 529 college savings plans fell 13% from the third quarter and 21% from a year earlier, to about $88.5 billion, according to a report assembled by Financial Research Corp. and released by the College Savings Foundation this week.

Gross sales - new money invested in the plans - fell 10% from the third quarter, to $1.27 billion, but redemptions, or withdrawals from 529 plans, fell from both the third quarter and a year earlier, the report said.

Investments in 529 plans fell because of tough market conditions, though a decline in redemptions indicates "investors remain committed to the long-term goals of saving for college," Kevin McMullen, the Washington foundation's chairman, said. "There is a lot of uncertainty with college financial aid and student loans, and investors are starting to realize that the only way to control your destiny is through savings," he said.

The fourth-quarter data was troubling, McMullen said, because traditionally the quarter is a time when assets are moved into 529 plans as a yearend tax strategy, but uncertain markets dampened that movement.

He said he met with industry executives in January, and everyone is "cautiously optimistic" about 529 plan growth. "No one really knows what will happen in the course of the next year in terms of the market, but everyone feels that 529s have a place, and everyone knows that it is critical to set money aside to save for college."

Since the plans, which debuted in 1997, remain a product that is "sold rather than bought," advisers remain the most effective distributors, McMullen said, but as people continue to learn more about the plans, other channels will be able to increase sales. …

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