College Savings Plan Participation Lags

The cost of going to college continues to increase, but a recent report by the U.S. Government Accountability Office (GAO) found that relatively few families take advantage of state-sponsored college savings plans (known as 529 plans) or Coverdell Savings plans. According to a 2010 survey cited in the report, fewer than 3% of U.S. families had a 529 or Coverdell plan. Earnings from such plans are tax-exempt so long as they are used to pay qualified educational expenses.

The report also found that the savings plans are more likely to be used by wealthier families. It estimated that the median financial asset value for families with the plans was about $413,500, compared with a median value of $15,400 for families without the plans. Similarly, families with the plans had a higher median income than those without them, $142,400 compared with $45,100