Nearly 10 million U.S. households—about 13% of the 74 million that owned mutual funds in 2024—identified education as a primary goal for their investments, according to the Investment Company Institute (ICI)
Of those, 15%, 11.1 million households, reported owning 529 plans, the tax-advantaged accounts designed to help families save for future education costs.
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As of year-end 2024, there were 16.1 million 529 savings plan accounts nationwide, with an average account balance of approximately $31,100. Total assets in these plans reached $500.6 billion.
And while that’s a meaningful sum, it represents just a fraction of the broader mutual fund market, which totaled $38.8 trillion in U.S. assets in open-end funds at year-end 2024.
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Indeed, the ICI noted in its most recent yearbook that the demand for education savings vehicles has been moderate since their introduction in the 1990s, partly because of their limited availability and partly due to investors’ lack of familiarity with them.
New tax legislation would expand 529 plan uses for K-12 expenses and lifelong learning while fixing key HSA contribution rules for spouses.
529 Plans are popular, but demand has moderated
According to the ICI, households that save for college tend to skew younger and more educated. About 52% of households using 529 plans, Coverdell ESAs, or regular mutual funds and ETFs to save for education were under age 45.
These savers also spanned a broad range of educational backgrounds: 63% had completed college, 19% had some college or an associate’s degree, and 18% had a high school diploma or less.
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Income levels varied as well. More than a third, 35%, of college-saving households had annual incomes under $100,000, suggesting that education savings is not limited to higher earners.
What most of these households had in common was children under age 18 at home, reinforcing the connection between early family planning and proactive education savings.
And those savings are necessary, given the cost of education. Based on the most recent data from the College Board’s 2024 “Trends in College Pricing” report, covering the 2024-2025 academic year:
Public Two-Year Colleges (in-district students): The average total budget for full-time undergraduate students, including living expenses, was $20,570.Public Four-Year Colleges (in-state students): The average total budget for full-time undergraduate students, including living expenses, was $29,910.Public Four-Year Colleges (out-of-state students): The average total budget for full-time undergraduate students, including living expenses, was $49,080.Private Nonprofit Four-Year Colleges: The average total budget for full-time undergraduate students, including living expenses, was $62,990.
Why 529 plans are a good option for education savings
Over the past two decades, a series of federal laws have steadily expanded the appeal and flexibility of education savings accounts, particularly 529 plans and Coverdell Education Savings Accounts (ESAs).
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It began with the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA), which made 529s and Coverdells more attractive by increasing contribution limits and adding flexibility. The Pension Protection Act of 2006 made those changes permanent for 529 plans.
For Coverdell ESAs, permanence took longer. The 2010 Tax Relief Act extended the EGTRRA enhancements for two years, and the American Taxpayer Relief Act of 2012 finally made those changes permanent.
More recently, the SECURE Act of 2019 expanded what 529 plans can pay for, including apprenticeships and up to $10,000 in student loan repayments. The SECURE 2.0 Act of 2022 added another major benefit: starting in 2024, unused 529 plan assets can be rolled over – withing limits – into a Roth IRA for the plan’s beneficiary, offering a new way to repurpose leftover education savings for retirement.
Big, beautiful bill to make 529 plans even more appealing
And now, the proposed House Ways and Means tax bill introduces some major changes yet again to 529 plans.
According to Ben Henry-Moreland, senior financial planning nerd at Kitces.com, certain K–12 education costs, such as textbooks, tutoring, and standardized test fees, would be eligible for tax-free 529 distributions if the legislation becomes the law of the land as written.
In addition, Henry-Moreland said the plans could be used to cover expenses related to earning and maintaining post-secondary credentials.
That would include not only traditional college degrees but also professional certifications, potentially even the Certified Financial Planner (CFP) designation.
Thus, the legislation would make 529s a more flexible tool for lifelong learning and career development, not just college savings.
Fixes to health savings account contributions
Moreland also noted that the proposed legislation addresses longstanding quirks in the health savings account (HSA) rules.
For instance, when spouses make catch-up contributions starting at age 55, they’re required to each make the catch-up contribution to their own HSA.
“The proposed rule would allow both contributions to be made to the same account, as is the case with regular, non-catch-up contributions,” Henry-Moreland said.
The proposed rule would also ensure that one spouse being covered by a flexible spending account (FSA) at work wouldn’t automatically make both spouses ineligible to contribute to an HSA.
“Few people even know that this can be a problem, so it’s good to see Congress trying to address it,” he said.
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