This Is the Average 529 Plan Balance. How Does Yours Compare?

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Building a college fund? Read on to see how yours stacks up. 

Most parents want to make it possible for their children to get a college degree. And to that end, many are doing their best to save.

A good 30% of Americans are saving for college in a 529 plan, according to the Education Data Initiative. And the average 529 balance is $28,953.

That’s not a small amount of money. It also, however, may not be enough to cover the cost of a college education in full.

The cost of college keeps climbing

Based on recent data from U.S. News & World Report, the average cost of college for the 2022-2023 academic year was:

$39,723 for private colleges$22,953 for out-of-state public college$10,423 for in-state public college

This means that $29,000 in college savings would only cover about three years of public in-state tuition.

Of course, just because the average 529 plan balance is a little under $29,000 doesn’t mean that parents in that boat are done saving for college. But still, it’s important to have a realistic view of what college costs these days. And it’s also important to have honest conversations with your children about what you can and cannot afford to spend.

Is a 529 plan the best home for your college savings?

You won’t get a federal tax break on the money you put into a 529 plan (though some states might offer their own incentives). But the upside of housing your college savings in one of these plans is that your investments get to grow tax free, and withdrawals for qualified educational expenses are tax free.

By contrast, with a regular brokerage account, investment gains are not tax free. And you’re liable for taxes on gains year after year.

That said, if you end up with too much money in a 529 plan (clearly, a good problem to have), you’ll face a 10% penalty on the gains portion if you take withdrawals for non-education purposes. And withdrawals for non-educational expenses are taxable.

However, 529 plans are fairly flexible in that you can switch beneficiaries. So let’s say you have two children and one decides not to attend college. You can, at that point, designate your second child as the beneficiary of that account so that they can use that money.

Now if you want more flexibility with your college savings, you may want to stick to a taxable brokerage account or a Roth IRA. If you go the latter route, you’ll get a tax break on gains and withdrawals, too, but you’ll also have the option to reserve funds not needed for college for retirement.

All told, it’s encouraging to see that parents are doing their best to build up nice balances in their 529 plans. If you’re saving for college, whether in a 529 plan or another vehicle, and your balance isn’t close to what the typical American has saved, fear not. If your children are still years away from college, there’s time to ramp up. And if not, your children can always explore different options for keeping their education costs down, like spending a couple of years at community college or pursuing scholarship opportunities.

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