529 College Plans Continue Surge

At the end of the third quarter, total assets held in 529 college savings plans reached $163.7 billion, a 21.6% increase from the year-earlier total, according to a report by Financial Research Corp.

As FRC noted, “529 saving plans continue to reach year-over-year all-time highs. Therefore, investor interest in 529 plans and saving for education continues to rise.” (Those numbers do not include 529 prepaid plans, which held an estimated $22.1 billion of assets at the end of the third quarter of 2012.)

Estimated 529 net outflows (contributions minus withdrawals) were $0.8 billion in the third quarter of 2012, compared to outflows of $0.4 billion in the year-ago quarter. This increase indicates that “investors are successfully using 529 plans for their intended purpose of qualified higher education expenses,” FRC asserted. “Third quarter is when families take withdrawals from 529 savings plans and other investment accounts as that is when tuition bills are due for the academic year."

Among 529 savings plans, Virginia’s CollegeAmerica plan, offered by American Funds, continued to dominate. With $34 billion in assets, up 22.5% in 12 months, this Virginia plan had a 21.0% market share. Only one other plan–New York’s College Savings Program, distributed by Vanguard and administered by Upromise Investments, topped a 5% market share. This direct-sold New York plan, which grew by 23.8% in the past two months, has $12 billion in assets and a 7.1% share, according to FRC.

Among the 10 largest 529 savings plans on the FRC list, the fastest growth (30% in 12 months) was posted by Utah Educational Savings Plan Trust, which is administered by the state and uses Vanguard index funds. Nevada’s Vanguard 529 Savings Plan was close behind, with a 29.3% growth rate. These Utah and Nevada plans have market shares of 3.0% and 4.3%, respectively.

American Funds’ 21.0% market share also was enough for leadership among plan managers, but the plans managed by Upromise in 10 states combined to provide a 20% share, in second place. The other leading managers were TIAA-CREF (an 8.3% share from plans in 10 states), Fidelity (7.5% share, four states), and T. Rowe Price (4.8% share, two states).