Issue 7: “F” is for Five-Twenty-Nine (529)
Fall 2025
F is for Five-Twenty-Nine (529)
Fall is in the air and school is once again back in session…but what happens when school is no longer free? While some families have been shelling out for private school since K-12, nearly all will face the reality of paying for higher education.
Why should I care?
If you haven’t heard, the price of college has handsomely outpaced income growth for decades. Here are some examples from across the spectrum of options.
How much does college cost per year in 2025?
$105K Cornell ($88K Tuition + $17K Rm/Bd) ($66K tuition for NY residents)
$43K UCLA ($24K Tuition + $19K Rm/Bd) ($64K out of state)
$26K Cal State Fullerton ($7K Tuition + $19K Rm/Bd) (in state)
If those numbers don’t burn your eyes, multiply by 4 years and add in travel costs for visits. Still not impressed, these are TODAY’s prices!! Financial planners have modeled out the obscene numbers for a 10 year old, and let alone your newborn. More than one child, hah! Sports scholarship and valedictorians aside, it’s time to talk 529. Btw, we recommend women’s golf, if valedictorian isn’t an option.
What are the benefits of a 529?
A 529 plan is a tax-advantaged option to help families save for future education expenses. Named for Section 529 of the Internal Revenue Code, these plans provide incentives for long-term education savings, making them a critical tool for parents, guardians, and even grandparents who want to help their children/beneficiaries access higher education.
The primary benefit of a 529 plan is its tax advantage. Contributions to a 529 grow tax-deferred, meaning that gains are not subject to federal or state taxes. Withdrawals, when used for qualified education expenses…are tax free.
This is different from tax “deductible”. Contributions are NOT tax deductible at the federal level…more on that later.
What are qualified expenses?
Funds must be used for qualified education expenses, such as tuition, fees, books, supplies, and even certain room and board costs. These can include on-campus housing, off-campus rent, groceries, utilities, and meal plans…as long as the student is enrolled at least half-time in a degree or certificate program at an eligible institution. There are gotchas…for example, the total amount used for off-campus room and board cannot exceed the school's official cost of attendance (COA) for room and board. There are also penalties for failure to use the 529 funds for qualified expenses. Fun, right?
State-level tax benefits
As we said above, 529 contributions are not deductible at the federal level. Yet some states do offer additional tax incentives, such as an actual deduction or credits for contributions or credits, further enhancing the plan’s appeal. The compounded growth over time, coupled with these tax benefits, significantly increases the amount available for education and can reduce reliance on student loans. If you want to maximize such benefits, you’d want to contribute to the maximum deductible value. Check your state’s 529 page for the latest. For example, here is New York State’s 529 page, showing a lifetime limit of $520K.
If that wasn’t annoying enough, you don’t have to open a 529 plan in your state. Huh? While your state may determine the tax benefits of a 529, you can open a 529 plan operating in another state. This is common practice as 529 plans differ widely depending on their state of operations. For example, it would not be unusual for a resident of New York to open a 529 plan operated in Alaska. This additional option makes the optimal choice a moving target regardless of your state of residence. Utah’s 529 plan has received Morningstar recognition and attracts funds from around the country.
When Jon moved to Missouri, he realized that if he opened up a second 529 in MO, he could deduct up to $16K of his contributions from his MO state tax returns. That results in a savings of about $700 per year. Not a ton, but over 10 years, that might be enough for a family trip to Hawaii.
Highly Flexible
Flexibility is another key aspect of 529 plans. While funds can be used at most accredited colleges and universities in the United States, many universities abroad are also eligible. The options include undergraduate, graduate, and vocational programs. The account owner retains control over the funds, including the ability to change the beneficiary if the original recipient does not need the funds, which ensures that the money can still be used within the family. However, you can also establish a 529 plan for a non-family member such as a child of a friend. Even non-citizens can contribute to a 529 plan. And yes, you can create a 529 plan for yourself!
Additionally, contributions are not limited by income level, making 529 plans accessible to a wide range of families. Finally, some plans now allow for a portion of funds to be used for K-12 tuition expenses or student loan repayment, increasing their versatility in a changing educational landscape. Sometimes people get ahead of themselves on “flexibility”, so always check out the IRS 529 FAQ to confirm.
Compounded Growth Strikes Again
Beyond the direct financial benefits, 529 plans promote a culture of saving and planning for education. By establishing a 529 plan early, families can take advantage of the power of compounding over many years. Even small, regular contributions can accumulate into a substantial sum by the time the child reaches college. This encourages disciplined financial behavior and reinforces the importance of long-term planning.
The importance of 529 plans extends to the broader context of higher education affordability. With tuition costs rising steadily, many families will struggle to cover education expenses or otherwise incur significant debt. The grim reality is that graduate salaries have not grown at the rate of tuition, creating a deepening hole for those who elect to take on college debt. A well-funded 529 plan can reduce financial stress, provide more choices regarding schools, and allow students to focus on learning rather than finances.
529 plans make sense
In summary, 529 plans are a cornerstone of strategic education savings. Their tax advantages, flexibility, and potential for long-term growth make them an essential tool for families aiming to provide financial security for education. Beyond the monetary benefits, they foster disciplined saving habits and mitigate the financial burden of rising education costs, ensuring that students can pursue academic goals with fewer constraints. Think of it as a slush fund for education…the kid doesn’t go to college, the funds can be used for HVAC school. If one child only needs it for undergrad, use the rest to help the other child fund that MBA. By leveraging 529 plans effectively, families can make higher education more attainable and less financially stressful, highlighting the plan’s critical role in personal and intergenerational financial planning.
Jon & Anh @MyUncle_Satoshi
All statements are a collection of our thoughts and not financial advice.