College: Your Plan, Their Future - Why Investing in Your Kid's Education Matters.

Saving for college helps families manage rising tuition costs and to rely less on student loans, so graduates start with less debt, can focus on careers, and enjoy more freedom. Starting early lets your money grow through compounding, turning small (or big) initial contributions into a larger fund to be used when the beneficiary is ready to attend college.

When savings are ready, students can choose the right school and focus on learning instead of worrying about costs. Ultimately, saving now opens more educational options and lays the foundation for long-term financial health.

The most common ways families can start to build a college fund are:

529 College Savings Plan: State-sponsored account with tax-free growth and withdrawals for qualified school expenses. Many states also offer tax deductions or credits for contributions.

Coverdell Education Savings Account (ESA): Tax-advantaged account like a Roth IRA but for education. Earnings grow tax-free and can pay K–12 or higher-ed costs. Contribution limit of $2,000/year and income caps apply.

UGMA/UTMA Custodial Accounts: Brokerage accounts held “in trust” for a minor. No contribution limits and funds can be used for any purpose, though the child gains full control at legal age. Earnings may affect financial aid.

Roth IRA: Primarily a retirement account, but contributions (not earnings) can be withdrawn penalty-free for college. Offers wide investment choice and keeps funds tax-free if left for retirement.

Taxable Brokerage Account: Flexible, no contribution or withdrawal limits. You pay taxes on dividends and realized gains each year, but there’s no penalty for using the money whenever you need it.

U.S. Savings Bonds: Low-risk bonds (Series EE or I) whose interest may be tax-free if used for qualified higher-ed expenses. Contribution limits apply ($10,000/person/year).

CDs & High-Yield Savings Accounts: FDIC-insured, low volatility, and ideal as you near college age. Interest is taxable but preserves principal.

Permanent Life Insurance & Home-Equity Loans: cash-value life policies can grow tax-deferred and be borrowed against, while tapping home equity offers liquidity—but both carry unique risks and costs and may not the best solution for the majority of families.

Choosing between each vehicle will depend on every specific family situation, income and assets level. There’s no single “best” account for everyone, but for most families a 529 plan is the ideal cornerstone of a college‐savings strategy. Here’s why:

Tax-Free Growth and Withdrawals

• Money in a 529 plan grows tax-deferred, and withdrawals are tax-free when used for qualified education expenses like tuition, books, and room & board.

• This means more of your money stays invested and working toward your goals.

Flexibility in Use

• Funds can be used for college, K–12 tuition, vocational schools, apprenticeships, and even student loan repayment (up to $10,000).

• Starting in 2024, unused funds can be rolled into a Roth IRA (up to $35,000), giving families even more long-term planning options.

State Tax Benefits

• Many states offer tax deductions or credits for contributions to their 529 plans, adding another layer of savings.

High Contribution Limits & Control

• You can contribute large amounts—often over $300,000 total depending on the state.

• The account owner (usually a parent or grandparent) retains control of the funds, even if the beneficiary changes.

Encourages Early, Disciplined Saving

• 529 plans make it easier to start saving early, take advantage of compounding, and stay focused on long-term education goals.

Supports Intergenerational Wealth Planning

• Grandparents can contribute as part of estate planning.

• Funds can be transferred to another family member if the original beneficiary doesn’t need them.

529 plans are named after Section 529 of the Internal Revenue Code, created in 1996 to encourage families to save for future education costs with tax advantages. But the idea started earlier—in the late 1980s, states like Michigan and Florida launched prepaid tuition programs to help families lock in college costs.

As tuition kept rising and student debt grew, more states followed. In 2001, the Economic Growth and Tax Relief Reconciliation Act made 529 plan earnings federally tax-free when used for qualified education expenses, boosting their popularity.

Over time, Congress expanded their use:

• In 2017, 529s could be used for K–12 tuition (up to $10,000/year).

• In 2019, the SECURE Act allowed up to $10,000 to repay student loans.

• In 2023, SECURE Act 2.0 permitted rollovers to Roth IRAs under certain conditions.

Today, nearly every state offers at least one 529 plan, making them a key tool for tax-efficient education savings.

In conclusion, a 529 plan gives families a simple, tax-efficient way to build an education fund that grows and is withdrawn tax-free for qualified school expenses. By starting early (Whether you’re a parent or grandparent) you harness the power of compounding, reduce future reliance on student loans, and help your children or grandchildren pursue the schools and programs that fit them best.

Thanks for reading, see you next week for more insights and inspiration!