Saving for College: changing education landscape calls for thoughtful financial planning
For many families, saving for college ranks alongside retirement as a top financial priority. As a father of four, you can bet my wife and I are already thinking of the education expense as one of our family’s future big-ticket items.
The cost of higher education continues to rise faster than inflation, and the landscape of what “college” means is evolving—expanded online options, shorter certification programs, and employer-sponsored pathways are reshaping the definition of postsecondary success. In this shifting environment, thoughtful and flexible planning becomes more essential than ever.
Why College Planning Matters
According to the College Board, the average published cost of attending a four-year public university—including tuition, fees, and room and board—now exceeds $25,000 per year for in-state students and more than $55,000 for private institutions. Multiply that by four (or more) years, and it’s easy to see why student loan debt remains one of the biggest financial burdens for young adults.
For parents and grandparents, the question isn’t just how much to save, it’s how to save efficiently and how to prioritize that saving along with all the other financial demands. The right planning approach can help reduce future borrowing, leverage tax advantages, and even maintain flexibility in case educational goals change.
The New Education Landscape: Challenges and Considerations
Today’s families face a different college-planning reality than those of previous generations. These emerging trends complicate the picture and certainly influence how and how much to save:
- Evolving career paths: Many students pursue trade schools, associate degrees, or certifications instead of traditional four-year programs.
- Hybrid and online learning: Accredited online universities and hybrid programs offer lower-cost options, but the expenses can still be significant.
- Changing value perceptions: Some families now weigh the return on investment (ROI) of a degree more critically, factoring in potential debt and future earnings.
- Uncertain policy changes: Federal student aid programs, tax laws, and state incentives shift regularly, making long-term planning a moving target.
Enter the 529 Plan: A Cornerstone of College Savings
One of the most powerful tools available for education funding is the 529 plan. Originally established in 1996 under Section 529 of the Internal Revenue Code, these state-sponsored investment accounts allow families to save for education expenses with significant tax advantages.
How 529 Plans Work
A 529 plan functions similarly to a Roth IRA: contributions are made with after-tax dollars, and investment growth is tax-deferred. Withdrawals used for qualified education expenses—including tuition, fees, books, and room and board—are tax-free at both the federal and (often) state level.
Many states also offer income-tax deductions or credits for contributions, enhancing the benefit further. For example, Wisconsin residents can deduct a portion of 529 contributions from state taxable income each year, providing immediate annual savings.
Flexibility and Expanded Uses
- K–12 education: Up to $10,000 per year can now be used for private elementary or high school tuition.
- Apprenticeship programs: Approved trade or technical apprenticeships qualify for tax-free withdrawals.
- Student loan repayment: Beneficiaries can use up to $10,000 toward paying down student loans.
- Beneficiary flexibility: If one child doesn’t need the funds, the account can easily be transferred to another family member—or even a grandchild.
- As of 2024, unused 529 assets can be transferred into the beneficiaries Roth IRA, subject to rules and restrictions.
Strategic Advantages Beyond the Tax Savings
- High contribution limits: Many states allow lifetime contributions well over $300,000 per beneficiary.
- Estate-planning benefits: Contributions are treated as completed gifts, yet account owners retain control. Special rules even allow “superfunding”—a single lump-sum contribution of up to five years’ worth of annual gift-tax exclusions.
- Professional investment management: Plans are typically administered by reputable fund companies and offer age-based portfolios that adjust risk automatically as the beneficiary nears college age.
- Financial aid impact: 529 assets owned by parents are counted favorably in federal financial aid formulas, typically reducing aid eligibility by no more than 5.64% of their value.
Practical Planning Tips
- Start early. Time is the most powerful ally. Even small, consistent contributions can grow meaningfully over 15–18 years through compounding.
- Automate contributions. Monthly auto-deposits help maintain discipline and smooth out market volatility through dollar-cost averaging.
- Coordinate with other goals. Don’t sacrifice retirement savings—college can be financed, but retirement cannot.
- Review periodically. Reassess contributions, investment choices, and beneficiaries every few years as family circumstances evolve.
In my own family situation, my wife and I determined a goal that fits with our other life priorities, and we have stuck to that goal. Our children’s 529 plans will be added to other funding sources and give us peace of mind that we’re building a life with options for them. At the same time, we’re building toward our eventual retirement and balancing other important financial decisions.
The Bigger Picture: Education as a Family Value
Saving for education isn’t just about dollars and cents—it’s about opportunity, independence, and legacy. Parents who plan early model financial discipline and foresight. Grandparents who contribute to 529 plans plant seeds that may benefit multiple generations. In both cases, the act of saving becomes an expression of family values and belief in lifelong learning.
As education continues to evolve, the financial strategies supporting it must evolve as well. With tools like 529 plans, disciplined families can navigate change confidently—turning uncertainty into empowerment, and ensuring that when opportunity knocks, cost is not the barrier that stands in the way.
At FSG, we’re here to discuss 529 plans as well as other strategies to help ensure your family’s great life goals are met.
* this article has been written with AI assistance
