The average annual cost of a four-year public university (in-state) is now over $27,000 when room, board, and fees are included. Private universities average over $58,000/year. And college costs have historically inflated at 4-6% annually — faster than general inflation. Without a plan, this becomes one of the largest financial obligations families face.

The 529 Plan: The Best Tool for College Savings

A 529 plan (named after Section 529 of the tax code) is a state-sponsored investment account specifically for education expenses. The core advantages:

• Tax-free growth: Earnings are never taxed as long as withdrawals are used for qualified education expenses
• Tax-free withdrawals: Federal tax-free; many states also exempt qualified withdrawals from state tax
• State tax deductions: Over 30 states offer deductions or credits on contributions
• Flexible beneficiary: Can be changed to another family member if the original beneficiary does not attend college
• Rollover to Roth IRA: Starting in 2024, up to $35,000 of unused 529 funds can roll into a Roth IRA for the beneficiary (subject to annual Roth contribution limits and 15-year holding requirement)

The Math: Why Starting Early Is Not Optional

Saving for a child born today who will start college in 18 years, targeting $35,000/year in today’s dollars:

• At 5% college inflation: four years will cost approximately $296,000 in future dollars
• At 7% investment return: you need to save approximately $575/month starting today
• Wait 5 years to start: you need approximately $1,050/month
• Wait 10 years: approximately $2,150/month

Starting early is the single most powerful lever in college savings math.

Investment Options Inside a 529

Most plans offer age-based portfolios that automatically shift from aggressive (heavy stocks) to conservative (bonds/stable value) as the child approaches college age. This is generally the right approach — you do not want a stock market crash right before tuition is due.

The Best 529 Plans

You are not required to use your own state’s 529. You can invest in any state’s plan. Top-rated plans for low fees and investment options consistently include Utah Educational Savings Plan, Virginia CollegeAmerica, and Nevada Vanguard 529. Compare plans at savingforcollege.com.

What If the Child Does Not Go to College?

Non-qualified withdrawals are subject to income tax plus a 10% penalty on earnings (not principal). But the Roth IRA rollover option (SECURE 2.0) means unused funds are no longer necessarily wasted. The account can also be transferred to siblings, cousins, or even yourself if you go back to school.