Research by Heim & Dr. Ruth Winecoff – The Impact of State 529 Plan Tax Incentives on Take-Up and Savings

May 8, 2023

Abstract

This paper examines the impact of the 529 plan tax benefits on plan participation and savings. Using state-level data on tax benefits for plan contributions and on the number of open accounts and the amount of assets under management, we estimate fixed effects regression of the use of 529 accounts as a function of measures of tax benefit generosity. Our results imply that offering a tax benefit per se does not significantly increase the percentage of children with an account or the average balances in accounts. In addition, while regression analysis suggests that offering a larger tax benefit for a moderate contribution leads to a small increase in the growth of the percentage of children with 529 savings plans and a larger tax benefit for the maximum contribution is associated with larger balances in savings plans, neither finding is sustained within multiple permutation tests and both are likely spurious.

Heim, B. T., & Winecoff, R. (2023). The Impact of State 529 Plan Tax Incentives on Take-Up and Savings. Public Finance Review0(0). https://doi.org/10.1177/10911421231168325

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