While the relative failure of 529 plans has become a part of the fund industry conventional wisdom, it may still be too soon to write the plans off altogether. Assets in 529 college savings plan have boomed along with the stock market since mid-2003, according to research from Bisys' Financial Research Corp. and the College Savings Foundation (CSF). The two groups found that 529 assets jumped 66.9 percent over twelve months to roughly $40 billion from $25.8 billion at the second quarter of 2003.

The new estimate pegs growth in the product at 7.4 percent since the end of this year's first quarter. The rebound in assets should lend a financial hand to 529 plan administrators that have been squeezed by states seeking to cut administrative costs. Those costs are typically paid as a percentage of assets.

The CSF is a not for profit organization focused on building public awareness of and providing public policy support for 529 plans while FRC is a research-based consulting firm.

Despite the rise in total assets, FRC estimated net sales actually declined during the second quarter to $2.9 billion, compared with $4.1 billion in 2004's first quarter. FRC estimated sales in last year's second quarter at $2.4 billion. For the first half of 2004, net sales of $7.0 billion were up 45.8 percent compared with net sales of $4.8 billion in the first half of 2003.

"Investors and families continue to embrace the 529 approach, recognizing - among other features - the powerful tax incentives that the plans offer for college savings," said Chuck Toth, CSF chairman, in explaining the numbers.

Toth also lobbied for Congress to make permanent the federal law allowing tax-free treatment of distributions that is now due to sunset at the end of 2010.

"Congress can do its part to support the savings efforts of American families - and the growing acceptance of 529 plans as an effective higher education savings tool - by making the tax-free treatment of qualified distributions from 529 plans a permanent plan feature, as soon as possible," he said.  

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