©2005 Investment Company Institute. All rights reserved. Information may be abridged and therefore incomplete.
Communications from the Institute do not constitute, and should not be considered a substitute for, legal advice.
[19218]
October 5, 2005
TO: 529 PLAN ADVISORY COMMITTEE No. 28-05
PENSION COMMITTEE No. 33-05
PENSION OPERATIONS ADVISORY COMMITTEE No. 28-05
RESEARCH COMMITTEE No. 14-05
RE: INSTITUTE RELEASES AD HOC SURVEY OF COVERDELL ESAs AS OF JUNE 30, 2005
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 June 30, 2005. This ad hoc survey was conducted in response to ongoing interest in
the education savings market.5
Survey respondents indicate that between December 31, 2004 and June 30, 2005, the
number of beneficiaries with Coverdell ESAs edged down slightly.6 Survey respondents
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 is $2,000 for tax-years
2002 through 2010 (up from $500 prior to 2002).
5 For recent asset and account data on the 529 plan market, see the College Savings Plans Network data for March
2005 (distributed in Institute Memorandum [#18980], dated June 29, 2005).
6 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 past year and a
half. In addition, however, some reporters noted migration to 529 plans.
2
indicated that Coverdell ESA assets invested in mutual funds increased 10.4 percent over the
first half of 2005, despite slightly negative equity market returns.7 Survey respondents managed
assets for about 792,000 ESA beneficiaries at the end of June 2005. As of the end of June 2005, the
average ESA beneficiary held a total of $2,500 in mutual fund assets in 1.5 funds.
Coverdell ESA Survey Results:
Number of Coverdell ESA Beneficiaries Reported by the Sample
673,300
753,000
776,800 786,400
791,200 791,200 794,000 792,000
December
2001
June 2002 December
2002
June 2003 December
2003
June 2004 December
2004
June 2005
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 The S&P 500 total return index was down 0.8 percent over the first half of 2005; the Russell 2000 total return index
was down 1.3 percent.