If you’re a parent, chances are you’ve heard some version of this advice: “You need to open a 529 plan if you want to save for college.”
But here’s the truth: a 529 is one of many tools in the college savings toolkit.
It’s important to understand that saving for your child’s education is a strategy. That strategy can be multi-faceted, built with a combination of tools that match your family’s values, financial priorities, and long-term goals. And importantly, that strategy should be part of your broader financial plan.
Let’s walk through some of the most common savings options, starting with the 529.
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What You Need to Know About 529 Plans
There are a lot of reasons families turn to 529s. They offer tax-deferred growth, and if the money is used for qualified education expenses (e.g., tuition, room and board, books, and supplies), it can be withdrawn tax-free. Some states even offer tax deductions for contributions. In addition, contribution limits are generous. In many states, you can save six figures for each child.
There’s even a relatively new feature: if your child doesn’t end up using all of the funds for education, a portion can be rolled over into a Roth IRA (with some rules and limits), helping kickstart their retirement savings.
But 529s have limitations, too. If you need the money for something other than education, your child decides not to attend college, or you don’t use all the funds, you’ll likely pay taxes and a penalty on the earnings. Additionally, once that money’s in the account, it’s not as easy to repurpose it for other goals or emergencies, limiting liquidity and flexibility. And even though the account is in the parent’s name, it’s still considered in financial aid calculations, which can impact eligibility.
Other Tools in the Toolbox
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So, what else is out there?
One option is a UTMA or UGMA custodial account, which can be used for more than just college. These accounts are in your child’s name, and once they reach the age of 18 or 21 in most states, the money is theirs to use however they want (e.g., for college, a car, or a backpacking trip across Europe). Just keep in mind that the assets belong to the child and count more heavily in financial aid formulas.
Another approach? Whole life insurance. While it might not be top of mind when you think about college, it can actually serve as a financial tool that grows cash value over time. That cash value can be borrowed against—tax-free—for anything, including tuition.1,2 It also provides a layer of long-term protection, and the account isn’t considered when calculating financial aid. However, it’s a longer-term commitment and should be considered in the broader context of your overall financial plan.
Finally, there’s a taxable investment account in your name. You won’t get the same tax perks as a 529, but you will have complete control, no contribution limits, and the ability to use the funds however you see fit, whether that’s for education or something else entirely. You’ll pay taxes on the earnings, but for some families, the flexibility is worth it.
Which Option Is Best?
One option isn’t necessarily better than the others. Often, the most effective college savings strategy is a combination of tools designed around what matters most to your family. When I meet with families, I ask questions like:
- What’s important to you about funding education?
- Would you rather save aggressively or have your child share in the cost?
- Do you expect scholarships? Do you think the college landscape might change?
- If it came down to saving for college or staying on track for retirement, what takes priority?
- Is it more important to you how the tuition is paid, or that it is paid?
These are deeply personal questions, but they’re essential to creating a savings plan that works for your life.
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College may feel far off, but the earlier you start shaping your savings strategy, the more flexibility and confidence you’ll have when that first tuition bill arrives. Remember: it’s not just about choosing a tool. It’s about building a plan that reflects your family’s goals, supports your broader financial life, and gives your child the opportunity to step into their future without unnecessary financial stress.
Need help figuring out your own education savings strategy? Let’s chat.
Please reach out at 914-288-8862 or Snyder-Blum@strategiesforwealth.com
1 Some whole life policies do not have cash values in the first two years of the policy and don’t pay a dividend until the policy’s third year. Talk to your financial representative and refer to your individual whole life policy illustration for more information.
2 All whole life insurance policy guarantees are subject to the timely payment of all required premiums and the claims-paying ability of the issuing insurance company. Policy loans and withdrawals affect the guarantees by reducing the policy’s death benefit and cash values.
Gary Blum is a Registered Representative and Financial Advisor of Park Avenue Securities LLC (PAS). Securities products and advisory services offered through PAS, member FINRA, SIPC.
Financial Representative of The Guardian Life Insurance Company of America® (Guardian), New York, NY. PAS is a wholly owned subsidiary of Guardian. Strategies for Wealth is not an affiliate or subsidiary of PAS or Guardian. Not practicing CPA for Guardian or its subsidiaries or affiliates. CA Insurance License # 0M10186.
529 plans are not guaranteed by any state or federal agency. By investing in a 529 plan outside of the state in which you pay taxes, you may lose the tax benefits offered by that state's plan. Withdrawals used for qualified expenses are federally tax free. Tax treatment at the state level may vary.
Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. The information provided is based on our general understanding of the subject matter discussed and is for informational purposes only.
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