As published on Kiplinger on July 24, 2025.
As college costs rise and financial strategies become more complex, many affluent families are asking if 529 plans are still the smartest way to save for a child’s or grandchild’s education. The short answer? Absolutely.
529 plans remain the gold standard for education savings—particularly for high-net-worth families who value tax efficiency, flexibility, and long-term planning. But like all financial tools, 529s work best when they’re part of a broader, multi-layered strategy tailored to your family’s unique goals. Here’s why these plans are so powerful—and when you might consider complementing them with other approaches.
Why 529 Plans Still Reign Supreme
What makes 529 plans so effective is simple: tax-free growth and tax-free withdrawals for qualified education expenses. No other investment vehicle offers this combination of benefits specifically for education savings.
But the advantages go even deeper for affluent families:
- Estate planning leverage. Contributions are considered completed gifts and are removed from your taxable estate—ideal for grandparents who want to reduce estate size while supporting future generations.
- Front-loading flexibility. In states that offer a tax deduction for 529 contributions, front-loading five years’ worth of gifts can provide a meaningful tax benefit. It also gives the assets more time to grow tax-free, maximizing the long-term impact of your contributions.
- Financial aid optimization. Compared to taxable brokerage accounts, 529 plans are typically treated more favorably in the financial aid process. When a grandparent owns the 529, the account is not reported on the FAFSA, which can improve a student’s eligibility for need-based aid.
- More uses than you might think. Funds can be used for K–12 tuition (up to $10,000/year per student), and unused funds may be rolled over to a Roth IRA for the beneficiary—up to $35,000 over five years under SECURE 2.0 rules. There are many stipulations that come along with these transfers for them to be compliant, but this is certainly a great way to utilize an overfunding.
- Portability. A common myth is that you must use the 529 in your state. Not true—plans are portable across states and schools, though tax benefits vary by state.
When You Might Want More Than a 529
While 529 plans should serve as the cornerstone of your education savings strategy, they may not be the only tool you need—especially if you’re planning for multiple children or grandchildren, navigating uncertain educational paths, or seeking greater control over how and when funds are used.
In these situations, a blended approach can offer valuable flexibility. We often recommend funding 50–75% of the expected education cost into a 529, with the remaining balance placed in a taxable brokerage account. This allows families to benefit from the tax-free growth and estate planning advantages of the 529 while preserving access to funds for non-qualified expenses or alternative education plans—such as study abroad, gap years, or post-grad programs. However, it’s important to keep in mind that they may trigger capital gains taxes when funds are withdrawn.
To further support your goals, the following are a range of other complementary tools that you may consider:
- UGMA/UTMA custodial accounts. Useful for continuing family gifting beyond 529 limits, these accounts eventually transfer control to the beneficiary—typically at age 18 or 21—so they may not be appropriate in every situation.
- Education trusts. For families with complex legacy goals or special needs considerations, trusts provide added control, oversight, and structure to ensure funds are used as intended.
- Direct tuition payments. Grandparents can pay a school directly without triggering gift tax limits. This strategy can both reduce their taxable estate and make an immediate, meaningful impact.
Together, these tools help create a more adaptable education funding plan—one that supports your child’s or grandchild’s ambitions without sacrificing financial control or long-term tax efficiency.
Education Planning as a Legacy Tool
For many affluent families, education planning is about far more than paying tuition—it’s about creating a lasting legacy. A well-structured 529 strategy allows families to pass on wealth with intention, aligning financial gifts with deeply held values like opportunity, education, and self-sufficiency.
Annual contributions to 529 plans serve a dual purpose: they fund a meaningful cause while efficiently moving appreciating assets out of the donor’s taxable estate. For grandparents in particular, this is an opportunity to witness the impact of their wealth during their lifetime—something many of our clients find far more rewarding than a posthumous transfer.
Grandparents can contribute annually to multiple 529 plans—one for each grandchild—as part of a broader multigenerational giving strategy. This not only spreads wealth in a tax-efficient way but also sets the tone for how future generations view education, financial planning, and the family’s broader legacy.
As mentioned earlier, by taking advantage of front-loading provisions, donors can superfund each account with up to five years’ worth of gifts at once, jumpstarting tax-free growth and giving those assets more time to compound. When paired with other estate planning tools—such as trusts, gifting strategies, or direct tuition payments—529 plans become a cornerstone of an integrated approach to legacy planning.
Best Practices for Maximizing Your 529 Plan
If you’re ready to build or refine your education funding strategy for your family and loved ones, consider these tips:
- Choose low-cost, state-run plans over higher-cost advisor-sold options.
State-sponsored plans often come with lower fees, which means more of your money stays invested for growth. Be sure to compare expense ratios and long-term performance. - Research state-specific benefits.
Some states offer added perks—like Pennsylvania’s SAGE Scholars program, which provides tuition discounts at participating schools—that can enhance the value of your contributions. - Avoid overfunding.
Contribute what fits comfortably within your budget. Prioritize your retirement savings first, then allocate additional funds toward education as your financial picture allows. - Review your plan annually.
Your child’s needs and your financial goals may shift. Revisit your 529 plan regularly to adjust contributions, update beneficiaries, and ensure your investment strategy is still aligned. - Ask smart questions.
Talk with your advisor about plan costs, tax implications, financial aid considerations, and backup strategies for unused funds. A well-informed plan is a more resilient one.
Ultimately, education planning is more than a financial strategy—it’s a structured, purpose-driven way to transfer wealth that reflects your values and strengthens your family’s future. A well-structured 529 plan offers meaningful advantages, but the most effective approach often blends it with other tools tailored to your unique goals. Done thoughtfully, education planning becomes a powerful way to stay connected to the lives and aspirations of your children and grandchildren—building not just financial security, but a lasting legacy of opportunity.
