The right account, the right amount, and the right time to start.
College costs have grown faster than inflation for decades. The families who absorb them best started early — not because they saved more, but because compounding had more time to do the work.
The Situation
A 529 plan is a tax-advantaged savings account specifically for education expenses. Contributions grow tax-free, and withdrawals for qualified education expenses — tuition, room, board, books, and now K-12 tuition up to $10,000/year — are completely tax-free. It is the most tax-efficient education savings vehicle available.
A 529 funded early is not primarily a savings vehicle. It is a compounding vehicle — and time is its most important ingredient.
— Worthune Decision Framework
Getting Started · Steps 1 & 2
The sequencing is non-negotiable: fund your emergency fund, capture employer retirement match, and ensure retirement is on track before directing significant funds to a 529. A child can borrow for college; you cannot borrow for retirement.
Retirement before 529 — alwaysYou are not required to use your home state's 529 plan. Compare plans by: investment options (low-cost index funds?), expense ratios, and whether your state offers a tax deduction for contributions. If your state offers no deduction, plans from Nevada, Utah, and New York are consistently highly rated for low costs.
Shop across statesHow Much to Save · Steps 3 & 4
Common framework: aim to cover 1/3 of projected costs through 529 savings, with 1/3 from current income at time of college, and 1/3 from scholarships, aid, or manageable loans. This distributes the burden across time and preserves flexibility.
One-third rule distributes the burdenUnder 10 years to college: aggressive allocation (primarily equities) for maximum growth. Within 5 years: shift toward more conservative holdings to protect accumulated gains from market volatility right before you need the money. Age-based funds handle this automatically.
Age-based allocation automatically adjustsKey Rules & Flexibility · Steps 5 & 6
Qualified withdrawals: tuition at accredited colleges, room and board (up to certain limits), books and supplies, K-12 tuition (up to $10,000/year), student loan repayment (up to $10,000 lifetime). Non-qualified withdrawals are subject to income tax and a 10% penalty on earnings only — not contributions.
Qualified expenses are broadly definedIf a child receives scholarships, doesn't attend college, or your savings exceed costs: beneficiary can be changed to another family member (sibling, cousin, even yourself), funds can be rolled over to a Roth IRA starting in 2024 (up to $35,000 lifetime, subject to rules), or withdrawn with penalty only on earnings.
Unused funds have multiple exit pathsAfter the Work
After reviewing your education savings approach:
Your education savings are compounding alongside your retirement plan.
Open the account today. Even small, consistent contributions benefit enormously from starting early.
Ensure retirement match is captured and emergency fund is funded before redirecting to college savings. The sequence matters.
Starting early matters more than the amount. Compounding rewards the patient.
Next Step
Use Worthune's education cost planner to set a realistic savings target, compare 529 plan options, and build a contribution schedule that fits your financial priorities.
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