529 College Savings Plans for the Unborn
Want to help your yet-to-be-born grandkids pay for college? You can’t start too soon.


If “compounding returns” are the Eighth Wonder of the World, then the more time to compound the better! Why not set up and start funding 529 college savings accounts for your kids or grandkids right now, before they have kids or are even married?
When I went to University of Iowa 30 years ago, the annual out-of-state cost was about $5,000. Today, one year at U. of Iowa costs just over $40,000, or eight times what my parents paid! Many colleges charge a similar amount, and quite a few charge much more than that for the privilege of taking college courses at their school.
With this in mind, paying for college has never been more challenging. If you would like to help your future grandkids afford to go to college, you should consider funding 529 college savings plans sooner rather than later.

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
My Plan for My Own Family
For my three teenagers, my strategy is to over-fund their 529 college savings plans. The money they do not use for college will continue to grow tax-deferred and can be used for their own children (my grandchildren) by simply changing the beneficiary. I retain ownership of the account. That means they (or their spouses) won't spend the money I'm giving them on something other than my grandkids’ college.
If, for any reason, I need to tap into those accounts, the earnings portion (but not the amount I contributed) is subject to federal and state income taxes and a 10% federal penalty. I do not expect to ever need the money in those accounts, but I could see that as a drawback for some retirees who are not quite sure they can afford to do this. Knowing you can withdraw money from the account should ease that concern.
Money invested in 529 college savings plans grows free of state and federal taxes, and if/when the money is ultimately withdrawn and used for qualified higher-education expenses, it comes out income tax-free. There are no maximum annual contribution limits, but keep in mind there can gift tax consequences if you give more than $14,000 per year ($28,000 for couples). There is a way to contribute up to $70,000 ($140,000 for couples) in a single year without gift taxes, provided you make no other gifts to the beneficiary that year or for the next four years. Money can be added to the account until the balance hits the limit, which varies by state, from $235,000 for Georgia and Mississippi up to over $500,000 in Pennsylvania.
How the 529 Magic Works
Let’s look at an example:
Your daughter or granddaughter is 22, done with college and single. Rather than wait until you die to give her money as an inheritance, you set up a 529 college savings program today (or keep hers if you still have it) with you as the owner and your daughter or granddaughter as beneficiary and successor owner. You can keep this plan a surprise if you choose.
Say you invest $10,000 into the plan, and since it would ultimately be used 18 years after your child or grandchild has a child of her own, the time horizon is long, therefore, you invest the money aggressively, all in stock funds.
Let’s assume your 22-year-old-daughter or granddaughter gets married and has a child at age 32. With the 529 plan account you set up 10 years before, you would then name the baby (your grandchild or great-grandchild) as beneficiary. Assuming an 8% rate of return, the value of your investment from when she was 22 (10 years of growth) is now $21,589. If that account was left to grow another 18 years at only 7%, when your grandchild or great-grandchild is ready for college that initial $10,000 investment would have grown to $72,969! So, your $10,000 investment grew to $72,969 in 28 years tax-free.
Contingency Plans
If you happen to die before all this plays out, you have named your child or grandchild as the successor owner, so they take over the account with their child as the beneficiary. And if the person you set up the 529 plan for chooses not to attend college, you don’t lose your money. You could change the beneficiary to a sibling or other family member or use the money to pay for your own continuing education. Or you could take a withdrawal and pay a 10% penalty and taxes on the earnings portion of your withdrawal.
There are many ways to save for college, but 529 plans come with some substantial benefits, including:
- This strategy provides fantastic tax efficiency. Once your money is deposited in the 529 plan the growth should never be taxed again when used for qualified expenses.
- It allows you to retain control over the money while you are alive.
- There are many investment options to choose from.
- The plan beneficiary can use the money for any college they choose, and the beneficiary can be easily changed among family members.
- You may get a state income tax deduction for your contributions, depending on your state. Visit SavingforCollege.com to check your state’s rules.
College costs are out of control. If you can afford to do this for your child or grandchild, it is a great way to leave a financial legacy.
Brad Rosley, CFP® , has been president of Fortune Financial Group (FFG) since 1996. FFG runs a virtual planning practice working with clients from all over the country. Rosley specializes in helping clients successfully navigate retirement related planning goals and construct investment portfolios to meet their personal life goals.
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.

Brad Rosley, CFP®, has been president of Fortune Financial Group (FFG) since 1996. FFG runs a virtual planning practice working with clients from all over the country. Rosley specializes in helping clients successfully navigate retirement related planning goals and construct investment portfolios to meet their personal life goals. His book "Beyond Money" made the Amazon best-seller list in the summer of 2018.
-
Stock Market Today: Stocks Soar on China Trade Talk Hopes
Treasury Secretary Bessent said current U.S.-China trade relations are unsustainable and signaled hopes for negotiations.
By Karee Venema
-
2026 Disney Dining Plan Returns: Free Dining for Kids & Resort Benefits
Plan your 2026 Walt Disney World vacation now. Learn about the returning Disney Dining Plan, how kids aged three to nine eat free, and the exclusive benefits of staying at a Disney Resort hotel.
By Carla Ayers
-
SRI Redefined: Going Beyond Socially Responsible Investing
Now that climate change has progressed to a changed climate, sustainable investing needs to evolve to address new demands of resilience and innovation.
By Peter Krull, CSRIC®
-
Here's When a Lack of Credit Card Debt Can Cause You Problems
Usually, getting a new credit card can be difficult if you have too much card debt, but this bank customer ran into an issue because he had no debt at all.
By H. Dennis Beaver, Esq.
-
Going to College? How to Navigate the Financial Planning
College decisions this year seem even more complex than usual, including determining whether a school is a 'financial fit.' Here's how to find your way.
By Chris Ebeling
-
Financial Steps After a Loved One's Alzheimer's Diagnosis
It's important to move fast on legal safeguards, estate planning and more while your loved one still has the capacity to make decisions.
By Thomas C. West, CLU®, ChFC®, AIF®
-
How Soon Can You Walk Away After Selling Your Business?
You may earn more money from the sale of your business if you stay to help with the transition to new management. The question is, do you need to?
By Evan T. Beach, CFP®, AWMA®
-
Two Don'ts and Four Dos During Trump's Trade War
The financial rules have changed now that tariffs have disrupted the markets and created economic uncertainty. What can you do? (And what shouldn't you do?)
By Maggie Kulyk, CRPC®, CSRIC™
-
I'm Single, With No Kids: Why Do I Need an Estate Plan?
Unless you have a plan in place, guess who might be making all the decisions about your prized possessions, or even your health care: a court.
By Cynthia Pruemm, Investment Adviser Representative
-
Most Investors Aren't as Diversified as They Think: Are You?
You could be facing a surprisingly dangerous amount of concentration risk without realizing it. Fixing that problem starts with knowing exactly what you own.
By Scott Noble, CPA/PFS