Could a 529 Plan Help Your Family Prepare for Rising Education Costs?

As financial advisors, one of the most common questions we hear from parents and grandparents is: “What’s the best way to save for a child’s education without sacrificing flexibility or control?” For many families, the answer is a 529 college savings plan. These plans are purpose-built for education and offer powerful tax advantages. Here’s a look at how they work and why they are a cornerstone of modern education funding.

A 529 plan is a tax-advantaged savings account designed specifically for education expenses. You open an account for a beneficiary (typically a child or grandchild), and the funds are invested in portfolios similar to those in a retirement account.

While states sponsor these plans, you aren’t locked into your home state’s option. You can choose any plan based on cost and investment features—though your home state’s plan often provides a distinct advantage, as some states like Indiana and Illinois provide significant state income tax credits or deductions for contributions, providing an immediate “return” on your savings. For example, Indiana residents can contribute up to $7,500 per year and receive a guaranteed 20% tax credit. That is $1,500 if you contribute the max amount.

The most compelling reason to use a 529 plan is the “triple” tax benefit:

• Tax-Deferred Growth: Your investments grow without being chipped away by annual taxes.
• Tax-Free Withdrawals: When used for qualified education expenses, withdrawals are 100% free from federal and state social security taxes.
• State Incentives: Depending on where you live, your contributions may lower your state tax bill today.

What counts as a “qualified expense”? This includes college tuition, room and board, books, and required equipment. Furthermore, funds can now be used for K–12 tuition (up to $10,000/year) and registered apprenticeship programs.

Another strength of 529 plans is their flexibility:

• You keep control. The account owner—not the beneficiary—decides how and when money is used.
• Change the beneficiary. If one child doesn’t need the funds, you can switch the beneficiary to another family member without tax consequences.
• No income limits. Unlike some education credits and deductions, anyone can contribute regardless of income.

A common concern is “overfunding” — what happens if there is money left over? Recent law changes have added a brilliant safety valve: unused 529 funds can now potentially be rolled into a Roth IRA for the beneficiary (subject to lifetime limits and account age requirements). This allows you to jump-start a child’s retirement if they don’t need the full amount for school.

Summary:

With the cost of education continuing to rise, a proactive strategy reduces the need for future student debt. A 529 plan allows you to:

1. Save with Purpose: Dedicated funds for a dedicated goal.
2. Maximize Efficiency: Let compounding work for you, not against you.
3. Stay in Control: Maintain the power to change plans as life evolves.

Whether you are starting with small monthly contributions or looking to “superfund” a plan for estate planning purposes, the best time to start is now.

If you’re unsure how education savings fits into your Financial Plan, let’s sit down and look at the numbers together. We can ensure your strategy is optimized for both your family’s future and your own retirement goals.

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.​

This is a hypothetical example and is not representative of any specific investment. Your results may vary.