Recent rule changes make 529s more powerful and flexible than ever
College costs have climbed rapidly over the past several decades, making it difficult for many families to save enough for four (or more) years of higher education. According to the College Board’s most recent Trends in College Pricing and Student Aid report, the average published tuition and fees for the 2024–2025 school year were:
However, tuition and fees tell only part of the story.
When you include room and board, books, supplies, transportation, and other living expenses, the total cost of attendance for an in-state public university is estimated close to $30,000 per year in 2025. Private schools can cost up to three times more before factoring in future inflation. With costs like these, it’s no surprise that most families need help saving. That’s exactly where 529 plans come in.
529 plans are a popular way to save for college, and for good reasons. A 529 is a tax-advantaged investment tool designed specifically for education expenses. Earnings accumulated in the plan are not subject to federal tax and generally not subject to state tax, if used for qualified education expenses. This helps your savings grow faster compared to a traditional brokerage account, where earnings are subject to capital gains taxes. Withdrawals from the 529 are also tax-free, when used for eligible education expenses such as tuition, room and board, books and supplies. These features have helped millions of families send their kids to college since 529s were introduced in 1996, and several modifications in recent years have made them more powerful than ever.
Whether you’re just starting to save for college or you’ve been contributing to a 529 for years, consider these four tips to take full advantage of the plan and maximize every dollar.
Tip 1: Start Early
Your kids may be little now, but as many veteran parents will tell you, time flies. Don’t wait to start saving for their education. Just as with saving and planning for retirement, 529 plans need many years to capture the incredible power of compounding, which, with enough time, can drive exponential growth and turn a modest monthly investment into a sizable sum. The longer you put it off, the harder it will be to reach your goals.
Tip 2: Frontload the Account, if Possible
While 529s don’t have annual contribution limits, the IRS treats 529 contributions as gifts, so one person contributing more than $19,000 in 2025 would trigger a federal gift tax. One exception, however, allows a contribution of up to $95,000 (five years of contributions at once) in a single year, with no tax consequences. If you or a relative (grandparents often enjoy contributing) are in a position to make a large lump sum deposit, it can make a huge difference in value as it gives the money more time to grow.
Tip 3: Avoid Saving Too Much
One downside of the 529 account is that withdrawals not used for qualified education expenses are subject to taxes and a 10% penalty. This creates legitimate concerns about over saving for college and getting stuck with unused funds your kids don’t need for school. This can happen if your child chooses a relatively inexpensive school, gets a valuable scholarship or decides not to pursue a four-year degree at all. With these possibilities in mind, put some thought into what sort of educational journey you envision for your child (what level of degree, in-state or out-of-state, public or private) and research how much it might cost by the time they graduate high school. Then work with your financial advisor to determine a realistic contribution plan to meet that goal without significantly overshooting.
Tip 4: Understand All Your Options
Despite your best laid plans for your children, their decisions are their own and you can’t predict their every move. You may still end up with more money in the 529 than you need to fund their education. But breathe easy—the good news is that recent rule changes have made 529s more flexible, and there are other ways to use the 529 funds without paying the 10% penalty.
- Thanks to the SECURE 2.0 Act of 2022, you have the option to convert 529 funds (up to a $35,000 lifetime maximum) to a Roth IRA in the beneficiary’s name. It’s a great way to give your child a head start on retirement savings.
- Another option is to change the beneficiary on one child’s account to another family member—it could be another child, a spouse who goes back to school, or even a future grandchild. If they will use the funds for educational purposes, you’re in the clear.
- Finally, it’s important to note that 529s aren’t restricted to college expenses. Since 2018, you can use 529 plans to cover up to $10,000 in annual expenses for K-12tuition and enrollment fees in public, private, or religious schools for children. The One Big Beautiful Bill Act (OBBBA) passed in 2025, has made these plans even more flexible to include non-tuition costs like instructional materials and dual-enrollment fees.
While the rules can be tricky, the benefits of 529s are worth the extra planning. To ensure your education savings plans align with other long-term goals, reach out to the experts at Quotient Wealth Advisors.
