In looking back on 2023, several developments benefitted 529s: the rollover of excess 529 funds to IRAs as of January 1, 2024, the launch of prepaid cards, and the expansion of electronic tuition payments to colleges and universities. With respect to IRA rollovers, we applaud the swift movement of State Administrators and private sector Program Managers as rollovers are already happening across the country. On a side note, we also appreciate the Treasury’s recent direction that withdrawals by April 15, 2024 can be used to fund 2023 IRA contributions. Importantly, the expansion removes a concern shared by young account owners about saving for retirement versus saving for education by giving them the opportunity to roll unused 529 assets to IRAs.
Since the inception of 529 Plans, our industry necessarily focused on contribution and asset growth. As beneficiaries age, the focus now shifts to simplifying 529 withdrawals. Prepaid bank cards and electronic tuition payments demonstrate technology enhancements that ease the use of 529 funds. In December 2023 the College Savings Plans Network hosted “The 529 Technology Showcase: Highlighting the Latest in 529 Distribution” webinar, which highlighted these technology developments. The webinar materials included results from a recent Catalis study showing that 78% of U.S. adults prefer to bank online through a mobile application, and 79% of millennials strongly favor digital banking. These findings should encourage 529 administrators to consider enhancements to make participation easier for account owners.
In our June 2023 AKF Market Report, Education Savings Nation 2023: Going Beyond Just College Savings, we highlighted the introduction of 529 prepaid cards for withdrawals. These prepaid cards operate much like those currently used by ABLE Plans and Health Savings Accounts: withdrawals are loaded directly onto the cards, which students then use to pay qualifying expenses. This eliminates the need for a Plan to cut a check for a withdrawal, which means quicker access to funds. And, even where withdrawals could be transferred directly to a bank account, a prepaid card provides expense tracking and reporting, which creates an automatic paper trail in the event of an audit. Although there may be costs associated with a prepaid card, we believe it is timely for 529 Plans to at least consider the option, particularly since the ABLE industry embraced the technology from its start in 2016.
We also know that tuition is the largest expense facing any student, and yet, many higher education institutions still collect paper checks. This slows the payment process for account owners who must provide delivery information and for administrators who must cut a check. Fortunately, some 529 Program Managers have begun enabling digital payments by employing technology currently used by 401k plans. While account owners are unlikely to choose a 529 Plan based on its technology, the user experience will be that much better in Plans that have embraced available technologies like these.
With twenty-plus years under our belt as an industry, yesterday’s beneficiaries are becoming today’s account owners. If 529 Plans want to meet these potential investors where they are, then our landscape should demonstrate an appreciation for enhanced technology. Just as the IRA rollover removes a perceived barrier to saving in a 529 Plan, institutionalizing technology using prepaid cards and streamlining payments to colleges and universities will simplify the actual use of 529 funds. A win-win for everyone.