529 balances are growing, but so are college costs

Cramer's 411 on the 529 plan
Cramer's 411 on the 529   

Families saving for college continue to invest in 529 plans. Total assets in these tax-advantaged investment plans grew by 9.1 percent to $247.9 billion in 2014, according to a report by the College Savings Plans Network.

More people opening up accounts as well as investment gains contributed to the growth in 529 assets last year. The total number of 529 accounts increased 4.1 percent last year to 12.1 million (see graphic below). The average 529 account size grew to $20,474, a 4.5 percent gain from 2013. But that's still barely enough to cover one year of school at a public four-year college.

During the 2013-14 academic year, the average cost of tuition, room and board at a public four-year college was $18,391,a jump of 1.2 percent. And at private nonprofit four-year colleges, the average cost was more than double that: $40,917an increase of 1.7 percent from the previous year, according to The College Board.

And the gap between college savings and costs may grow if market gains slow: The College Savings Plans Network notes that 47 percent of all 529 accounts got no new contributions last year.

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(Above infographic courtesy of College Savings Plans Network.)

There are two types of 529s: savings and prepaid tuition plans. Savings plans, which are the most common type of 529, allow your investment to grow tax-free like an IRA. You can avoid taxes completely if you use 529 money to pay for qualified higher education expenses, which include tuition, fees, books, room and board. Prepaid tuition plans let users pay college tuition in advance.

Forty-eight states and the District of Columbia offer 529 plans. Two-thirds of states and the District of Columbia provide state tax benefits for 529 contributions. You can see if your state's 529 plan offers state tax benefits at SavingforCollege.com.

The college savings plans have gained a lot of attention from politicians recently. In January, President Barack Obamaproposed curbing the tax benefits of 529s, arguing that wealthy families enjoyed most of the advantages from these plans. The Obama administration withdrew its proposal days later after both Democrats and Republicans came out against it.

Last week, the House of Representatives passed a bill that would allow 529 money to pay for more computer and Internet access expenses. A similar bill has been introduced in the Senate with bipartisan support.

Read MoreHouse votes to expand college accounts Obama wanted to scrap

Betty Lochner, chair of the College Savings Plans Network and director of Washington state's 529 plan, said she expects the Obama misstep and congressional activity will draw more public attention to the tax benefits of 529 plans. "And more awareness of 529 plans will lead to more growth."