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Communications from the Institute do not constitute, and should not be considered a substitute for, legal advice.
[18928]
June 8, 2005
TO: 529 PLAN ADVISORY COMMITTEE No. 19-05
PENSION COMMITTEE No. 20-05
PENSION OPERATIONS ADVISORY COMMITTEE No. 18-05
RESEARCH COMMITTEE No. 10-05
RE: INSTITUTE RELEASES AD HOC SURVEY OF COVERDELL ESAs AS OF DECEMBER
31, 2004
The Institute recently surveyed certain of its members in a continuing effort to track
developments in the education savings market. Although 93 percent of households saving for
college do so through taxable investments, 20 percent of households saving for college use
education-targeted savings programs.1,2 At year-end 2004, Coverdell Education Savings
Accounts (ESAs) held $3 billion in mutual fund assets and 529 savings plans held $52.2 billion
in assets.3
The Institute’s most recent survey requested Coverdell ESA4 data on the number of
beneficiaries, average number of funds held per beneficiary, and value of their mutual fund
assets as of December 31, 2004.5 This ad hoc survey was conducted in response to ongoing
interest in the education savings market.6
1 Education-targeted savings programs include state-sponsored 529 prepaid tuition plans, state-sponsored 529
savings plans, and Coverdell ESAs.
2 See Figure 5 in “Profile of Households Saving for College,” which presents results from a 2003 ICI household survey
on college saving activity among U.S. households with children age 18 and younger (available at:
http://www.ici.org/stats/res/rpt_03_college_saving.pdf).
3 See ICI’s 2005 Investment Company Fact Book, Section Five: Mutual Funds in the Retirement and Education Savings
Markets (available at: http://www.ici.org/stats/mf/2005_factbook.pdf). About 97 percent of 529 savings plan assets
were invested in mutual funds at year-end 2004.
4 In July 2001, Education IRAs were renamed Coverdell ESAs. In addition, as allowed by the Economic Growth and
Tax Relief Reconciliation Act of 2001 (EGTRRA), the annual contribution limit to these accounts was $2,000 in 2002;
$2,000 in 2003; and $2,000 in 2004 (up from $500 previously).
5 The Institute has conducted five earlier ad hoc surveys containing questions on Coverdell ESAs or Education IRAs.
The most recent previous survey (for June 2004) covers the same sample as the current survey and is summarized in
Institute Memorandum [# 18035], dated September 23, 2004.
6 For recent asset and account data on the 529 plan market, see the College Savings Plans Network data for December
2004 (distributed in Institute Memorandum [#18687], dated March 23, 2005).
2
Survey respondents indicate that between June 30, 2004 and December 31, 2004, the
number of beneficiaries with Coverdell ESAs edged up less than 1 percent.7 Survey
respondents indicated that Coverdell ESA assets invested in mutual funds increased 16 percent
over the second half of 2004, boosted in part by favorable investment returns. Survey
respondents managed assets for about 795,200 ESA beneficiaries at the end of December 2004.
As of the end of December 2004, the average ESA beneficiary held a total of $2,300 in mutual
fund assets in 1.5 funds.
Coverdell ESA Survey Results:
Number of Coverdell ESA Beneficiaries
673,300
753,000
776,800 786,400
791,200 791,200 795,200
December 2001 June 2002 December 2002 June 2003 December 2003 June 2004 December 2004
Source: Investment Company Institute, Coverdell ESA surveys of an ad hoc sample of member firms.
These ad hoc survey results are based on the responses of 20 firms, representing an
estimated 53 percent of the $3 billion of Coverdell ESA assets invested in mutual funds at year-
end 2004. Note that the survey respondents are not randomly selected and therefore do not
necessarily reflect the characteristics of the typical Coverdell ESA invested in mutual funds.
If you have any questions or comments concerning the survey, please call me at (202)
326-5915.
Sarah Holden
Senior Economist
Research Department
7 Growth in the number of Coverdell ESA beneficiaries may have been higher than reflected in the reported statistics.
A few reporters indicated efforts to close very small or inactive accounts in their systems during the year.