Saving for college: 529 plans offer flexible and tax-smart education savings

Since your kids were born, you’ve likely been exposed to repeated messages about the importance of setting money aside for college. Understandable, when you consider the average annual cost for tuition, fees, room and board at a four-year private college is over $60,000, according to the College Board. Even a four-year in-state public university costs over $25,000 per year to attend, on average.

How to pay for college is a major financial decision for families, which is why starting early and saving regularly can give you additional leverage to potentially grow assets and offset some of the financial burden. A 529 savings plan may be an effective tool to build a college nest egg—even if that means opening one just a few years before your child graduates from high school.

529 plan basics

A 529 plan allows you to set funds aside for the express purpose of covering education costs. Parents can choose from a variety of plans and invest the money in different ways, giving 529s a broad appeal. Some key benefits of 529 plans include:

• High lifetime contribution limits—from $235,000 to over $600,000, depending on the state
• Tax-deferred earnings and tax-free withdrawals for qualified education expenses
• Control of the assets remains with the account owner, not the beneficiary
• Flexibility to change beneficiaries, for example, to another child or grandchild
• A “superfunding” option, allowing five years of contributions as a lump sum (up to five times the annual gift tax exclusion) without gift tax consequences
• Up to $10,000 from a 529 account can be used to repay student loans
• Under certain conditions, up to $35,000 can be rolled over into the beneficiary’s Roth IRA without tax penalties

Time is your biggest advantage

The earlier you start saving for your child’s education, the greater the opportunity to build a significant pool of assets.

“If you set aside as much as you can when your kids are little, that money has a long time to grow,” says Angie O’Leary, head of Wealth Strategies and Solutions at RBC Wealth Management–U.S.

For example, consider what happens when parents invest a lump sum of $2,000 into a 529 plan and continue with monthly $300 contributions until their child turns 18:

• If they start saving right after their child is born, by the time that child enters college, the account will have grown to approximately $122,000 (assuming an average annual return of six percent)
• By delaying that same savings regimen until the child’s sixth birthday, the account would only grow to around $67,000
• If parents didn’t begin saving until the child turned 12, the total value would reach just about $29,000

Better late than never

If your child (or children) is already approaching college age, you may wonder if it is too late to start contributing to a 529 plan. According to O’Leary, you may have to follow a more conservative investment path with a 529 plan if your child is entering college soon, but it’s still likely to be worthwhile.

“Just because you haven’t started saving in a 529 to this point doesn’t mean you should forego it entirely,” she says. “Even getting two or three years of potential tax-free growth in the account can be helpful.”

One way to make up for lost time? “Engage your village,” O’Leary says. “Forgoing material gifts and instead inviting family and friends to contribute to a child’s 529 is a great way to build that nest egg and show the value of higher education.” 

These financial gifts can be mutually beneficial—depending on what state they live in, contributors may be able to claim a deduction on their own state tax return. There may also be gift tax benefits for grandparents.

Leveraging the flexibility of a 529 plan

Even if you start saving late, a 529 plan offers significant flexibility that extends beyond the traditional four-year college timeline. For example, if your child decides to pursue a graduate degree, the window for using 529 savings expands—as does the time horizon for the assets to potentially grow.

Additionally, the scope of qualified expenses has broadened to include K-12 education costs, student loan repayment, and in certain situations leftover funds can even be rolled over into a Roth IRA for the beneficiary.

Perhaps the most flexible feature of 529 plans is the freedom to change beneficiaries at any time. This means you’re not limited to using the funds for your own children’s education—you can let the savings continue to accumulate for decades.

“Ultimately, those assets could be used to help pay for your grandchildren’s education,” O’Leary says. “Don’t discount the possibility that, while you may be late in saving for the current generation, you can still get a head start on securing educational opportunities for the next generation.”

This article was updated in July 2026.