The youngest of the millennial generation are just turning 30 this year! Whether you’re a millennial or related to one, the thirties bring new challenges: raising kids, caring for pets, and managing houseplants; sometimes all at once. As a financial advisor who helps families with young children and has helped families as their children head off to college, my first thought when one of my friends or family tells me they’re expecting is, “Oh my goodness, start saving now for college!”The Rising Cost of Education
According to College Board’s latest study, the average public 4-year in-state college tuition with housing expenses was $25,850 per year, up 3.7% from last year. For private non-profit college tuition and housing, it was even higher at $60,920 per year, up 4.1% from last year. Whoa! Can you even imagine what 18 years from now will look like?!
Based on my calculations using those growth rates, 18 years from today, a public 4-year college expense would basically double to $49,714 per year. The cost of a private would skyrocket to about $125,566, slightly more than doubling the current number.
What Is a 529 Plan?
You might be asking yourself, “What exactly is this 529 I keep hearing about?” A 529 plan is an education savings account that offers a tax-efficient way to save for education expenses. While college is the first thing people think of when it comes to 529s, a 529 plan isn’t limited to college alone. A 529 plan can also be used for trade schools, professional courses, and even K-12 expenses, as long as they are considered “qualified education expenses” by the IRS!
Now this savings account isn’t like your bank’s savings account. You can invest these funds to grow the beneficiary of the account, such as your child, niece, nephew, grandchild, or family friend’s kids, at any age! Just as the cost of college can grow over 18 years, so can your investments!
How Small Contributions Can Grow Over Time
Most people don’t start out with $60,000 in their newborn’s 529 account. When invested appropriately, even starting with $50 a month and annualizing an 8% return from the time they’re born until they turn 18 could result in a college savings balance of $22,470! Your investment of those after-tax dollars grows without being taxed all those years! If the beneficiary takes out funds for what are considered qualified education expenses, then the entire withdrawal is tax-free.
What Happens to Unused 529 Funds?
Well, you’ve got a few helpful options if they end up having fewer expenses than expected or not pursuing further education!
- You could continue to hold the funds in the 529 for them if they decide to pursue education later in life, need it for further education like a master’s degree or doctorate, or if you want to roll the remaining balance to their future child.
- You could move the remaining balance to another beneficiary like a sibling or grandchild. For example, one sibling decides they want to go to trade school and the other is pre-med. Based on the education expense, you may shift the funds to there will be a larger sum needed.
- This is a fun new option in recent years! If the 529 has been held for more than 13 years, you have the option for the beneficiary to roll the remaining to a Roth IRA in their name. There are limits to how much you can roll. You can move up to $10,000 to a Roth IRA for them per year, with a lifetime maximum of $35,000. Those limits could change over time. Be sure to consult your tax professional or financial advisor for current limits every year.
- You can take out funds for non-education-related expenses. However, the growth would be subject to ordinary income tax and a 10% penalty.
Education Savings as Part of Your Financial Plan
Education Savings as Part of Your Financial PlanAs you can tell, 529s are just the tip of the iceberg when it comes to building your financial plan. By working with a financial advisor, they can help you navigate and build a plan for you to fund part or all of the child(ren) in your life’s education goals! I get so excited when helping my clients plan for these special moments and when they come to fruition. Please reach out if you would like to learn more about saving towards education goals and more! And wouldn’t you know it, May 29th is 529 day! Happy 529 day to my fellow finance compadres who celebrate!
May 2026
Prior to investing in a 529 Plan investors should consider whether the investor’s or designated beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state’s qualified tuition program. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.
