By Randy Myers
Assets in 529 college savings plans more than doubled over the past 10 years to $471 billion, including an estimated $12 billion in stable value funds. Given that robust growth trend—and recent legislation expanding how 529 accounts can be used—industry experts suggest both numbers will continue to climb in the years ahead.
“There’s so much more opportunity to grow,” said Paul Curley, director, 529 & ABLE Solutions for ISS Market Intelligence, during a panel presentation at the 2024 SVIA Spring Forum in late April.
Curley was joined on the panel by Jessica Cole, head of stable value wrap contract management for investment management company Invesco, and Michael Swink, investment director for Virginia 529-ABLE Now. Virginia529 is an independent Virginia state agency that manages the nation’s largest college savings plan. It also administers ABLENow, the nation’s largest independent savings program for individuals with disabilities.
Curley said data collected by ISS Market Intelligence indicates that stable value funds, as stand-alone investment options, now account for nearly $6 billion in 529 plan assets. But he estimates that stable value funds embedded in target-date funds and other asset allocation funds likely account for another $6 billion, bringing the total allocation to stable value to about $12 billion.
Curley, Cole, and Swink pointed to several factors likely to keep 529 plans growing. For starters, only about 14.5% of U.S. family households were using the plans as of the end of 2023, so the pool of potential new users is large.
In addition, the recently passed SECURE 2.0 Act now allows 529 account owners to make penalty-free, tax-free rollovers from those accounts into ROTH IRA retirement accounts for 529 beneficiaries, subject to certain limitations. This change removes a hurdle to families who in the past might have refrained from investing in a 529 plan for fear that their child wouldn’t go to college and leave them with a savings account they couldn’t tap, at least without paying penalties. (Cole recommended caution in pursing such rollovers for now, however, given that the Internal Revenue Service hasn’t yet weighed in some of the details about how they will work. Swink noted that Virginia thus far has seen only a “very, very tiny” number of rollover requests.)
SECURE 2.0 isn’t the only legislation that’s expanded the way 529 plans can be used since passage of the 1996 law that allowed for their creation, the Small Business Job Protection Act. In 2017, the Tax Cuts and Jobs Act provided that 529 accounts could be used not only for college expenses but also for qualified K-12 tuition.
Now, Curley said, the college savings industry is hoping to secure eligibility for 529 plan accounts to be used to pay for other forms of education, including “stackable credentials” such as certificate programs for nurses and teachers.
Importantly, sponsors of 529 plans seem to have a growing appreciation for stable value as an investment option in 529 plans—likely because of its ability to protect principal as account beneficiaries near the age where they’ll start withdrawing assets. Today, Curley said, 40 plans offer stable value as an investment option, up from 29 in 2019.
Swink noted that Virginia’s 529 plan makes heavy use of stable value in its “target enrollment” funds, which shift from riskier to more conservative investments each year as the beneficiary’s enrollment date gets closer. Ultimately, he said, the glide path for these funds leads to a 100% allocation to stable value. The funds are designed for an 18-year ramp-up or accumulation phase, and then a four-year spend-down period.
While Virginia’s allocation to stable value tends to be higher than that of its peers near the end of their glide path, Swink commented that “for that spend-down (period) you need the money to be there.”
Curley encouraged the 529 plan industry to do a better job of marketing to the investment advisory community, which isn’t uniformly knowledgeable about the product or its potential for using stable value funds. In fact, some states continue to offer money market funds in their 529 plans instead of stable value funds.
“It’s constant education with stable value, because there are a lot of moving parts to it,” Curley said.
