Saving for a child’s education is one of the most critical financial goals many families aspire to, but it’s not always easy to know the best way to do it. Between rising tuition costs and competing savings priorities, deciding where to put your money can feel overwhelming.
For families in higher tax brackets, the decision is even more complex. Some savings options come with income limits or penalties that make them less practical. That’s where 529 plans stand out: they’re one of the most flexible and tax-advantaged tools available today.
529 plans are tax-advantaged accounts designed to help families save for educational expenses. A state or financial institution usually sponsors a 529 plan. Unlike some other types of educational savings plans, 529 plans aren’t just for college. They can also be utilized for K-12 expenses, such as tuition at private schools, as well as some postsecondary credentialing programs.
Any U.S. adult over 18 with a Social Security number or Tax ID and a legal U.S. address can open a 529 account. The beneficiaries of these accounts can be pretty much anyone; a child, a relative, or even yourself.
As long as 529 funds are used for qualified educational purposes, they’re tax-free. Withdrawals for non-qualified purposes are subject to a 10% penalty and may be taxed at the federal, state, and local levels.
Unlike other education savings accounts, any U.S. adult, regardless of income, can open and contribute to a 529 account.
529 balance limits range from $235,000 to $575,000, depending on the state.
You can save as much as you want, though significant contributions may trigger gift tax considerations.
Withdrawals for qualified expenses generally aren’t taxed at the federal or state level, and savings grow tax-free.
Funds can cover more than just tuition. According to the IRS, 529 funds can be used for expenses such as textbooks, computers, or even internet access if required for educational purposes.
Under the SECURE 2.0 Act, it is possible to roll a 529 Plan into a Roth IRA account, subject to specific requirements and limitations. This stipulation means any unused funds from a 529 plan can be used to give your children or grandchildren a head start on their savings accounts.
The One Big Beautiful Bill Act (OBBA/BBB), signed on July 4th, 2025, expanded the reach of 529 plans even further. Key updates include:
The changes implemented by the One Big Beautiful Bill Act made 529s even more flexible for families who want to plan across all stages of a child’s education.
While 529s are often the most tax-efficient option, they aren’t the only way to save for education.
Both offer tax advantages, but ESAs have income limits. If you earn more than $110,000 (single) or $220,000 (married filing jointly), you can’t contribute. 529s don’t have these limits.
These custodial accounts transfer assets directly to the child at adulthood, but they offer fewer tax benefits (only the first $1,250 in earnings is tax-free). UGMA/UTMA funds also count against the student more heavily on their FAFSA, since the account is in their name. This may reduce the student’s financial aid eligibility.
While simple, traditional savings accounts don’t keep pace with education inflation and lack tax benefits.
Parents and grandparents can contribute up to $5,000 annually, with the federal government providing an additional $1,000 for children born between 2025 and 2028. However, earnings are taxed upon withdrawal (unlike 529s). These accounts may ultimately work better as a way to jumpstart a child’s retirement savings, since withdrawals after age 59 1/2 can be used for any purpose without penalty.
For most families, 529 plans remain the most flexible and tax-advantaged way to save for education. With recent changes under the One Big Beautiful Bill Act, they now cover an even wider range of expenses. But as with all financial strategies, the best choice depends on your income, goals, and family needs.
Transitions don’t have to be traumatic or catch you off guard. At PFW Advisors, we help families compare options, take advantage of new opportunities, and develop personalized savings strategies that grow in tandem with their children.