Despite rising costs, parents are committed to saving money for their loved ones to attend college, research out last week from Fidelity Investments.
The firm’s 2024 College Savings Indicator Study found that saving for college is a leading priority for most Americans. As of 2024, 74% have started allocating savings towards college, compared to just over half (58%) in 2007. Over three-quarters (77%) believe the value of a college education is worth the cost.
Parents are determined to afford a majority of tuition for their loved ones, which can grow to over $41,000 for an average private four-year institution. Yet, while parents aim to pay 67% of their child’s education, the reality is that many are on track to only hit 30% of that goal, as more compete with inflation and higher day-to-day costs.
“While parents prioritize their children’s college education, the reality is that balancing day-to-day expenses with long-term savings can be daunting,” said Tony Durkan, vice president, head of 529 Relationship Management at Fidelity Investments. “Fidelity encourages parents to save what they can, when they can, with tools such as a 529 plan that offer the flexibility and tax advantages that may enhance a family’s ability to save.”
Yet not all respondents believe their children will one day attend higher education. The research notes how 35% of parents admit their child has expressed the likelihood of not attending college. For parents with 529 accounts who now wonder where to put those extra savings, SECURE 2.0 now allows parents to transfer those funds to a Roth individual retirement account (IRA) specifically for the beneficiary’s future retirement, states Fidelity.
Doing so would provide an extra boost to their child’s retirement, and especially as most by then have not started contributing, the report adds. In order to successfully transfer these funds, 529 accounts must be open for over 15 years before being eligible for the rollover. The account will be subject to annual Roth contribution limits and have an aggregate lifetime limit of $35,000.
Furthermore, the transfer amount must come from contributions made to the 529 account at least five years prior to the 529-to-Roth IRA transfer date, according to Fidelity.
“Leveraging savings tools such as a 529 plan can make a substantial difference when it comes to easing the financial burden for college,” says Durkan. “Thanks to recent legislation like SECURE 2.0, 529 plans have become even more flexible and enticing as a savings vehicle for parents.”
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with over six years of experience and a passion for telling stories and reporting news. Amanda received her degree in journalism and government and politics at St. John’s University. She is originally from Queens, New York, but now resides in Denver, Colorado with her partner. In her free time, Amanda enjoys running, cooking, and watching the latest drama show.
