Is a 529 Plan Really Your Best Option?


































Episode 356 - 529 plans are certainly popular these days, and with good reason: high contribution limits and potentially tax-free growth. But they’re not for everyone. Here are four other potential alternatives for funding a college education.













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Transcript of Podcast Episode 356





Hello, this is Bill Rainaldi, with another edition of Security Mutual’s SML Planning Minute. In today’s episode, is a 529 plan really your best option?
Over the years, 529 plans have become a popular method for parents financing a college education. That’s understandable. The money in a 529 plan grows on a tax-deferred basis. And you can take the money out tax-free, assuming it goes towards “qualified expenses.” Qualified expenses include tuition for college, as well as for elementary, middle, and high schools. They also include things such as room and board, computers and related equipment and services, as well as required textbooks.[1]
College expenses these days are undeniably high. According to U.S. News and World Report, the average cost of tuition and fees to attend an in-state public school is $11,371 for 2025, while the average for a private school is $44,961.[2] But the lifetime maximum limit that you can put into a 529 plan is pretty high as well, ranging from $235,000 to $550,000, depending on the state.[3]
But is a 529 plan always the best choice? Not necessarily. Some people are just uncertain about their child’s future education plans, or whether they’ll even go to college or not. If they do, a substantial scholarship is always possible. In addition, some people are also uncomfortable with the idea of locking up a significant amount of their money into a 529 plan.
But there are other alternatives that may be of interest to parents who may be hesitant about using a 529 plan. In a recent article in The Wall Street Journal, author Cheryl Winokur Munk talks about four additional possibilities:[4]

1. Taxable Investment Accounts. The big reason why these may work better for some individuals is that they are completely flexible. You can put in as much as you want or can afford, and you can invest it pretty much wherever you want. But it comes with some drawbacks. For one thing, you’re giving up the tax-deferred growth aspect of a 529 plan. For another, having a significant taxable investment account might make it more difficult to qualify for financial aid, particularly if the account is in the child’s name.
2. Roth IRAs. Surprisingly, a Roth IRA can be used for education expenses, but it’s tricky. If you’re using a retirement account for college, you’d better make sure you have addressed your retirement planning somewhere else. There are also contribution limits—$7,000 per year, or $8,000 per year if you’re age 50 and older—and income limits.