College costs continue to rise, and the earlier a family begins saving, the more time compounding has to do the heavy lifting. For many parents and grandparents, a 529 plan is the most efficient place to start.
How a 529 plan works
A 529 plan is a tax-advantaged savings account designed for education. Contributions are made with after-tax dollars — they are not deductible on your federal return — but the earnings grow tax-deferred and can be withdrawn tax-free when used for qualified education expenses, according to the IRS.
- Qualified expenses generally include tuition, required fees, books, supplies, and room and board for students enrolled at least half-time.
- 529 funds can also be used for certain K–12 tuition expenses, within annual limits.
- Withdrawals for non-qualified expenses are taxable on earnings and may face an additional 10% tax.
- Anyone can contribute — parents, grandparents, relatives, even family friends.
Start early, even with small amounts
The difference between starting at birth and starting at age ten is enormous, because the earliest dollars have the most years to grow. Even a modest automatic monthly contribution builds a meaningful foundation over 18 years. Birthdays and holidays are a great moment to invite grandparents to contribute instead of buying another toy.
Don’t sacrifice your own retirement
It is natural to want to give your children everything. But there is an important asymmetry: students can borrow for college, while no one can borrow for retirement. The healthiest college plans are built alongside — not instead of — retirement savings. We help families find a balance that funds both goals realistically.
Beyond the 529
A 529 is not the only tool. Depending on your goals, education funding can also be supported by Roth IRAs, taxable investment accounts, or certain cash-value life insurance strategies that provide flexibility if a child chooses a different path. Washington families should also review the state’s own education savings programs.
- Open the account early and automate contributions.
- Invite family to contribute at milestones.
- Revisit the investment mix as your child gets closer to college.
- Keep retirement contributions on track at the same time.
Education is Pillar Four of the 5 Pillars of Family Wealth. A short planning session can show you how much to save each month to reach your goal.
Content on this site is for educational purposes only and is not tax, legal, or investment advice. Consult a qualified tax professional or attorney regarding your specific situation. Insurance products are subject to underwriting; guarantees are based on the claims-paying ability of the issuing insurer. Projections are illustrative only.
