Why 529s Matter More Than Ever

Having a plan. A 529 plan is not just a tax smart strategy but it also builds towards a financial legacy. Chances are you’ve thought about your legacy. 

Or maybe you’re funding private school. Maybe you have grandkids already. 

Or just maybe you want to make sure the next generation doesn’t carry the student debt burden you did. That’s where the 529 plan comes in.

As a financial planner who’s worked with families to not only plan for education expenses but successfully support loved ones to pursue their education related goals. I can say with confidence: few tools offer the flexibility, tax efficiency, and legacy potential of a well planned 529.

What Is a 529 Plan, Really?

529 plans are tax advantaged investment accounts designed to help pay for education expenses. Think of it as a specialized savings vehicle for everything from private K-12 to college and even graduate school.

And as of 2025 some of the new tax laws and regulations have extended the use of 529 funds to cover costs related to obtaining occupation related licenses, and certifications. 

Here’s why it stands out:

• Earnings grow tax-deferred.
  
• Withdrawals for qualified education expenses are tax-free.
  
• You stay in control of the funds, even as the student grows.
  
• You can change the beneficiary at any time.
  

And speaking of recent legislation, unused 529 funds can even be rolled into a Roth IRA in some cases. Learn more about Roth IRAs and how a Roth can benefit you.

Who Benefits Most from a 529 Plan?

If you’re reading this, you’re likely in a position where you:

• Have disposable income.
  
• Are thinking about how to support your kids or grandkids.
  
• Want to reduce estate taxes and/or optimize gifting.
  

A 529 Plan gives you all of that, with flexibility, tax efficiency, and legacy potential. Therefore, if you are looking for additional ways to grow your financial legacy, start a 529 program.

529 Program Case Study:

Let’s consider Mike at 55 years of age, and the grandfather of five grandchildren. He wants to support his grandkids with their education expenses, and if they decide not to utilize the funds for education then roll them over to Roth IRAs for their benefit.

Mike decides to frontload the 529 accounts with $95,000 each, using the IRS’s five year gift tax rule for 2025. Now he gets to watch them grow, tax-free, while reducing his taxable estate. 

And the reason why this reduces his taxable estate is because the account is for the benefit of the beneficiaries, and if Mike was to pass; the account would be available to the beneficiaries. Mike still has full control over the account while living and can direct the 529 account as he sees fit.

How to Start a 529 Plan: Step-by-Step

Step 1: Choose the Right 529 Plan

Not all 529 plans are created equal. You don’t have to use your state’s plan. 

In fact, it is best to compare the state tax benefit versus the plan’s flexibility and ability to meet your education needs. I have had clients opt for non state specific plans with better investment options, usability, and lower fees.

Top resources that I use to compare state run 529’s:

• Finaid.org – State Section 529 Deducations
  
• Vanguard – 529 tax benefits by state
  

If you prefer to manage the 529 plan yourself consider a direct sold self managed option. However, if you prefer to have additional support’ then, an advisor managed option would be best for hands on support and customization.

Therefore, to start the research on what option is best for you, I would start with determining what state options are available to you, and if there is any tax benefit. 

Step 2: Determine Your Funding Strategy

How much can you invest in a 529 account in 2025?

• Annual contributions up to $19,000 (individual) or $38,000 (couple) to avoid gift tax.
  
• You can frontload five years in one lump sum. Up to $95,000 (individual) or $190,000 (couple) per beneficiary.
  

This is a smart way to reduce your estate while maximizing tax-free growth. Keep in mind if you front load contributions then adding any additional amount above the gift tax maximum would result in estate gift tax during that 5 year period.

However, if you wanted to contribute more without the gift tax implication you would just wait until the 5 years were complete and contribute more in the subsequent years. 

Step 3: Pick an Investment Option

Most 529’s offer:

• Age-based portfolios that automatically shift to conservative as the student nears college.
  
• Custom portfolios where you choose from a menu of funds.
  

Align the investment with your time horizon and risk tolerance. The more time the beneficiary has until they need the 529 fund would allow for more of an aggressive strategy to start. 

The closer they are to needing the 529 funds would suffice a more conservative strategy. Or a blended approach that allows for longer term growth and mid term needs. 

Step 4: Name a Successor Owner

If something happens to you, who takes over the 529 account? Naming a successor owner would name the new owner of the 529 account in the event of death.

This is especially important if you’re using the 529 Plan for multigenerational wealth planning. Add a successor owner (often a spouse or child) to maintain continuity.

The successor owner would be able to update beneficiaries and have the same abilities as the original owner. 

Using a 529 Strategically

More Than Just College

A 529 isn’t just for college anymore:

• Up to $10,000/year can be used for K-12 public, private, or religious school tuition.
  
• Funds can be transferred to siblings or other relatives.
  
• You can now move unused funds to a Roth IRA (with restrictions).
  

Great for Estate Planning

Think of the 529 as an education trust alternative. You control the funds, it’s easy to set up, and you get to reduce your estate.

Need help coordinating this with your larger estate plan? Read our guide on How Much Can I Give My Kids Before Paying IRS Gift Tax.

Common Mistakes to Avoid

Mistake #1: Focusing Too Much on State Tax Breaks

Many states offer deductions for 529 contributions. But don’t let that drive your decision. 

Over time, compare how low fees, state tax deduction, and investment performance meets your needs.

Mistake #2: Overfunding

Unlike IRAs or 401(k)s, 529s don’t have annual contribution limits. But overfunding can cause tax headaches down the road. Know your student’s likely expenses and plan accordingly.

We do this by determining the expected education cost and adjusting for inflation to determine what the potential need would be. This is a simplified way to determine what is needed for education expenses.

Other factors may apply to your situation.  

Mistake #3: Not Coordinating With Your Advisor or Financial Planner

Too often, families open a 529 without considering how it fits into their overall financial picture. How much of the funds will you need now compared to later? Should this be part of a gifting strategy?

Let’s talk about that: Book a consultation with Andre Small, CFP®, MBA.

How It Fits Into Your Bigger Picture

At A Small Investment, we take a holistic view. Meaning we consider all areas of your financial life to provide you with advice and guidance.  

Education planning should not be a one off task. It weaves through your retirement goals, estate planning, and even your charitable giving.

A 529 program can:

• Complement your Roth IRA or brokerage investing strategy
  
• Help manage Required Minimum Distributions
  
• Preserve family values through legacy gifting
  

Read: Unlocking Your Financial Future Through Goal Setting

What’s Next, With 529 Education Savings Plan

If you’re serious about legacy, don’t delay. 529 plans reward early action. 

The sooner you fund, the more time your money has to grow. Even better, you can involve your family in the process. 

Show your children and grandchildren what it looks like to plan with purpose.

I’ve seen firsthand how meaningful it is when a client has 529 funds available not only for the first day of college, but the last semester as well.

Ready to get started? Use our financial resources to elevate your possibilities or schedule a personalized planning session.

Want more related strategies?

• What’s the Right Strategy for Funding My Child’s Education?
  
• How much can I give my kids before paying IRS gift tax?