529 Plans Are Growing — and So Is Their Cost to the Government

529 Plans Are Growing — and So Is Their Cost to the Government

iStockphoto/The Fiscal Times

Education savings accounts called 529 plans have grown dramatically since 2010, both in terms of the number of accounts and total assets, according to research by The Pew Charitable Trusts. And they’re set to continue growing after the 2017 tax law expanded the expenses they can cover, with other proposals potentially expanding their use even further.

The growing popularity of 529s means that the cost to the federal government in foregone revenue has risen about 25 percent since 2010, Pew reports:

“To date, the forgone federal revenue from 529 plans has been modest compared with other forms of federal support for higher education. In 2017, the costs totaled $2 billion, about 6 percent of all federal tax expenditures on higher education. But these costs have grown, rising by about $389 million—nearly 25 percent—since 2010, after adjusting for inflation. The Treasury Department projects that by 2027, the total will more than double to $4.1 billion in nominal terms and rise to 10 percent of higher education tax benefits. The department made those estimates before Congress expanded 529s to allow for certain K-12 expenses; the projection reflects the law as of July 2017.”

The Pew report says that information on the state-level costs of 529 plans is limited, but data from some states suggest that the lost revenue “appears to mirror patterns at the federal level.”