A recent study by financial services firm Edward Jones found that the majority of Americans (71 percent) still do not know what a 529 plan is. Only 29 percent of respondents could correctly identify a 529 plan as an education savings tool (down from 32 percent of Americans in 2017) among four potential options, including a retirement savings plan, a form of life insurance, or a low-cost health plan (17 percent, 11 percent and nine percent, respectively).

"It's concerning to see the percentage of individuals who still don't know what a 529 plan is or understand its usefulness in preparing to tackle education expenses," said Danae Domian, an Edward Jones principal. "A 529 plan is a tax-advantaged savings plan, available to anyone, that is designed to encourage preparation for future education costs. There's a misperception that only parents can establish these plans. But in reality, any person can set up a plan for any student."  

Awareness varied based on a variety of factors, such as age and household income. Gen-Xers (or those ages 38-53) were more likely to correctly identify 529 plans (35 percent) compared to their Millennial (27 percent) counterparts (or those ages 20-37). Additionally, the survey found that 529 awareness increased with household income. Fifty-two percent of individuals with a household income of $100,000 or more correctly identified a 529 plan versus just 17 percent of those with less than $35,000.

How are Americans saving now?

When it comes to specific education savings strategies, Edward Jones found that almost half of respondents (43 percent) used, or plan to use, their personal savings to pay for higher education expenses, followed by scholarships (33 percent), federal or state financial aid (31 percent), and private student loans (20 percent), with 529 plans trailing behind as the least-utilized strategy (13 percent). 

When looking closer at how much individuals are saving toward future education expenses, the survey found that, on average, half of Americans (50 percent) are not saving anything on an annual basis. Even more disturbing, the figure drops to 41 percent when looking at individuals with children under the age of 13.

"What's alarming is the percentage of individuals with young children who are not saving for future education expenses," said Domian. "As education costs continue to rise, beginning to save early on with a mix of strategies will be paramount in ensuring you're prepared to handle higher education expenses and aren't derailing other financial obligations, like your retirement, in the process."             

Tax Cuts and Jobs Act makes 529 Plans more flexible

Of those Americans who could correctly identify a 529 plan, 65 percent indicated that they were not more likely to take out a plan given the changes from the recently passed Tax Cuts and Jobs Act. Further, when looking at individuals with children under the age of 13, 53 percent indicated that they were not more likely to take out a 529 plan given the recent tax reform. 

Kyle Andersen, a principal at Edward Jones responsible for education savings plans, said, "Prior to the recently approved tax law, 529 plans could only be utilized on qualified higher education expenses. Now, these education savings tools can be used toward qualified tuition expenses for children in elementary and secondary schools."

Up to $10,000 per year per beneficiary can be distributed for these purposes without incurring federal income taxes.

"We encourage individuals to examine how 529 plans can offer a more holistic way to save for education expenses," Andersen said. "Now may be an opportune time to take advantage of the changing law, however investors should be mindful of how their state of residence may adopt the changing law from a state tax incentive and benefits perspective."

Not every state will be recognizing elementary and secondary tuition expenses as qualified education expenses. As a result, before using funds for elementary and/or secondary tuition expenses, investors should consult with the plan sponsor and a qualified tax advisor to understand the state tax incentives and state tax consequences of using such 529 plan funds.

As part of its ongoing effort to raise awareness for 529 plans and education savings techniques, Edward Jones branches across the country are recognizing May 29 as "Save for Education Day," a firm-wide holiday derived from the name of the education savings tool. Edward Jones branch offices will be hosting events in their communities to remind investors about the importance of setting education savings goals. Investors are encouraged to visit their local branches to learn more about planning for their children's educational future.