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A July 31, 2025, article in The New York Times triggered this post. The headline reads: Saving for College Once Felt Essential. Some Parents Are Rethinking Their Plans.
The article is primarily about 529 plans, but also about saving or attending college at all. One comment caught my eye as it questioned the value of college because it didn’t guarantee a good job. I wasn’t aware college ever guaranteed a job or anything else for that matter.
Nonetheless it appears 529 plans are falling out a favor, sometimes replaced by a brokerage account where the parent has access to the funds “if needed.” Now that sounds like a bad idea to me. Not unlike early withdrawals from a 401k.
We began using 529 plans when our first grandchild was born. He will be a sophomore in college this Fall. Our oldest granddaughter starts this fall as well – at the same college by chance.
Each month we contribute $100 to each grandchild’s account and another $100 on birthdays and Christmas. We used to print a “clever” note telling them what we did for their birthday, but stopped the note when one of the younger grandsons said he didn’t want a “coupon” for his birthday. Too bad, the 529 is still his present.
None of our account balances will pay for their college or even one year it appears, but it helps. So far, a portion of our 529 plans are being combined with the parents savings and scholarships to pay the first year. This allows the parents a bit more flexibility with their money and delays taking loans.
I don’t claim the 529 is always the best strategy, but they are easy to establish, they have tax advantages (sometimes tax free at the state level too) and you can set up automatic contributions as well have. Our plan’s investments are adjusted for less risk as the child nears college age.
Qualified education expenses eligible for 529 withdrawal typically include:
A 529 can be transferred among family members if necessary. The downside is withdrawals for non-qualified purposes are taxed as ordinary income plus a 10% penalty on earnings (subject to certain exceptions). Within limits, unused funds can now be placed into a Roth IRA for the beneficiary.
Is college necessary, a good investment, does it guarantee success of any kind? Should a basic college education take 4-6 years? We need to rethink the structure of education post high school, and I think some publicly funded education beyond twelve years should be considered, but I’m not ready to give up on college.
It sure is expensive though.
I started on the same path working after high school. I graduated in 1961, but didn’t have a college degree until 1978. It took a lot of time and other people’s money- VA and employer – and it took me away from family.
I needed the degree to move ahead, but what I was taught was of no value at all. Of course, it was all nights and weekends, hardly a real college experience.
That’s why I was adamant our children and now grandchildren would have a better experience.
529 Plans are just a tool. Like any tool they can be useful depending on the situation. When our children were growing up they were not available and we used a separate taxable brokerage account to save for university. If kids are smart and motivated, as demonstrated by how they perform in middle school and high school, a 529 can provide a lifetime boost in giving them a loan free education. Then, with good parental advice to help them make good school and career choices, they can spend 529 funds productively. We told our kids that there was enough money for them to go the local state university. If they wanted to go out of state, or to a private school they would have to come up the $$ for the additional expense. We also strongly advised that there was little real value in paying the extra to go to private universities.
We funded 529s for our grandchildren. One graduated last December and begins her teaching career next week as a kindergarten teacher. Another began his first year in medical school last Monday. Both graduated loan free. We have a 529 for our 3rd grandchild who will be 2 later this year. We will continue to provide help for them in grad school. We believe that family is everything.
My daughter took a lot of AP classes in High School, and there was an option to pay a few hundred dollars extra to get college credits for those classes at the local Community College.
Having those extra credits is allowing her to get her undergrad degree in three years, and she’ll have her Master’s at the end of four years.
We didn’t start a 529 when she was younger, because we thought she might go to college in Europe. She did go for her first semester, but wasn’t happy with it and transferred back to the US.
Now that she’s here, we do have an NJ Best 529 account for the simple reason that you can deduct up to $10,000 in 529 deposits from your NJ state taxes. We put $10k in there at the beginning of the year, and it comes right back out as soon as it settles.
She has a paid internship at a local company this summer, and they’ve already told her she has a job when she graduates if she’s interested.
I’ve mentioned before that we are lucky to be in a position where we can pay for college, so she will graduate debt free, which is a big plus. She was just awarded an $8k scholarship for the upcoming year, so our savings rate will go up a little!
You had me worried I had missed a big tax saving, but then I saw the deduction didn’t go into effect until 2022 and I’m not eligible.
Our granddaughter took a lot of AP course and received enough credit to cover a full semester.
Yeah, I didn’t hear about the deduction until late last year, luckily just in time to move $10k into the account in December. We didn’t qualify for 2023, so no loss there.
Those AP courses turned out to be well worth the effort! I didn’t go to school in the US, so it’s all new to me 🙂
You probably need to rethink the high school standard of education before addressing college. There is absolutely no need why basic undergrad needs to be more than 3 years if the intake is at an acceptably high common standard (universities elsewhere in the world manage it with time and leisure to spare)
I agree
As someone who did alright without a college degree, my opinion is that college is worth the investment. College would have given me direction, got me off to a faster start. I earned a decent middle class income, but wore my body down before I turned 50.
So I was in my 50s when I started Dan’s Tax Prep and sold the practice at age 70. Had I finished college with an accounting degree I may have been one of those “retire early” folks.
Having said that, I have few regrets. I’m in a good place with a good wife, good family, and many friends.
Regarding 529s, IMO they are a good but limited tool for college savings. To me, 18 years is not all that long a time to accumulate money. As you say, it helps, but far more will probably be needed.
I also think there could be some changes made in order to shorten the time to earn a degree.
Unfortunately, overly aggressive student loan programs have contributed to the expense. Ready access to these loan proceeds at the student level have let the universities charge unfettered tuition and fees. In a round about way, individual saving programs, like the 529s , will create a more discerning consumer and help keep universities in check. Assuming they are widely adopted and the student loan programs are reigned in.
I couldn’t agree more. If student loans weren’t readily available, I’m convinced the price of college would be a fraction of what it is today, with much more efficient universities.