August 20, 2025, marks the date 29 years ago that the Small Business Job Protection Act of 1996 was signed into law – the bill that included language for the original IRC Section 529. So, this week we celebrate “529 Plans at 29” – programs which have positively impacted millions of lives and are also maturing just as the students and families we serve age and mature.
The Early Years
State action providing tax-advantaged programs to help families plan and pay for postsecondary education started in Michigan and Florida in the 1980’s. From that beginning, states across the country developed similar programs. My journey with education savings began in 1994 when Virginia passed legislation creating the Virginia Higher Education Tuition Trust Fund (now Commonwealth Savers) and prepaid tuition contracts. I helped develop the program as a Senior Assistant Attorney General for Finance and Tax when this new entity with only a statute and a fiduciary board became my client. With a lot of assistance from our colleagues in Florida, Michigan, Alaska, Pennsylvania, and Texas, who by that time had already begun their journey, we launched a prepaid program in 1996 – just in time for 529s to be recognized at the federal level.
I have been privileged to be front and center over the last 29 years as these programs evolved – becoming more flexible and affordable pathways to better futures for families. The 1996 bill authorized not just the defined benefit prepaid tuition programs which states like Virginia had already opened, but savings programs more like a defined contribution IRA or 401(k) plan in the retirement arena. This expansion made all the difference and helped both kinds of 529 programs expand rapidly.
Cooperation and Collegiality Succeed
With Congress recognizing the importance of planning and saving for future education needs by providing favorable tax treatment to these mostly state-run programs the rapid growth of 529 programs was almost ensured. The states charged with administering 529 programs and their private sector partners picked up the mantle and took off, providing cost effective, professionally managed new solutions for families struggling with the ever-rising cost of education.
The last 29 years have brought many changes to 529 plans – but what is consistent is the collegiality and cooperation among the states in building and strengthening 529 plans. The College Savings Plans Network, established in 1991 in advance of federal action, has been an integral and crucial part of the 529 growth story. CSPN, which I am honored to chair this year, provides a space and forum for state program administrators and their partners and other interested stakeholders to come together and share ideas on about strengthening our plans and broadening their reach. That activity happens through legislative and regulatory advocacy, development of transparent disclosure principles, and through sharing ideas for outreach, marketing, governance, and investment management to make every plan better and stronger.
Legislative Wins
And oh, have we advocated – successfully and steadily and to excellent effect! In 2001 – a short five years from original adoption – federal action made qualified distributions from a 529 account completely tax free. Previously, gains were taxed on distribution to the beneficiary at a usually lower tax bracket than the account owner. This change made a popular program even better. When the EGTRRA provisions were made permanent in 2006 (in the Pension Protection Act) after tireless work by CSPN members and the individual states, growth in 529s really soared – stopped only briefly by the recession of 2008 and 2009.
More recently, 529 plan advocates have helped effect even more federal changes – including expanding the potential uses of a 529 account to computers and related peripherals to certain transfers to Roth IRA accounts. Most recently, just a month ago the tax reconciliation bill allowed 529 funds to be used for an expanded list of credential and certificate programs, apprenticeships, and continuing education and for an expanded list of K-12 expenses. The cooperation and advocacy of 529 plans across the country, with their partners and the assistance of CSPN, made all these changes possible.
By The Numbers
In 1996 when § 529 was adopted, state prepaid plans had modest amounts of assets – likely under $2 billion. By 1999, three years after 529 enactment, assets in 529 plans had grown to almost $14 billion. Fast forward to 2010, several years after the recession, and assets had climbed to more than $150 billion. Currently, based on data collected and maintained by ISS Market Intelligence, which provides valuable 529 insights and data, 529 plans across the country hold almost $570 billion in assets under management. Quite a success story. A stated goal over the years has been to flip the script on student loans – currently estimated at $1.64 trillion. Work remains to be done, but we are making progress in overtaking that student loan figure so that in future, more money is invested in 529 plans than is held in debt by our students.
What the Future Holds
As we approach three decades of 529 plans, the future looks good with recent federal expansions, but challenges remain. For all that 529 plans have grown and evolved, we still do not reach everyone with the message about what 529 plans can do for them. The structure and fabric of education is evolving, with many pathways to meet the education needs of the technology driven 21st century and there are headwinds to face. Higher education writ large faces uncertainty, with more people questioning the value of a four-year university education, or any postsecondary education, than in previous generations. Even with moderating tuition increases in recent years, the cost of education continues to climb and feel out of reach for many American families. The economics of many institutions of higher education are under severe strain – from falling enrollments to federal funding cuts to an aging population with fewer high school graduates.
529 plans and the passionate and deeply committed people who work for them will continue to do what we have done for 29 years – plan, execute and advocate on behalf of our customers and all the citizens of our states. We will provide gateways to the future for millions of students who otherwise might never reach for something new and different. We will provide inexpensive, quality investment options and professionally manage them. We will continue to advocate for positive legislative change to strengthen our programs. We will leverage our voices in the media and across social platforms, through webinars and in community activities to reach people with a message for the future and how education and a 529 account can help reach dreams! We will advocate educational access and affordability for everyone and provide resources in the form of financial education, scholarships, and mentoring to reach students where they are and help them find the right education pathway for them.
About the author:
Mary Morris is the CEO of Commonwealth Savers (formerly Virginia529) and the chair of the College Savings Plans Network.