You Should Be Investing in a 529 Now for Your Kids' or Grandkids' Tuition
The sooner you start, the more money you’ll have for your child’s education.


Year after year, the cost of higher education continues to climb, and many parents face the troubling prospect that expenses could increase significantly more by the time their kids get to college. Investing in a 529 college-savings plan offers tax and financial aid benefits, and it gives your savings the opportunity to grow in the stock market.
The average cost of college, including books, supplies and daily living expenses, is $38,270, according to the Education Data Initiative. Moreover, per the initiative, that average cost has a compound annual growth rate of 4.11%, meaning that your average checking or even high-yield savings account may not cut it to keep up with growth. Average in-state tuition at a public college was $10,662 in the 2023-24 school year, per U.S. News & World Report. But if your child or grandchild is targeting a private college, that average tuition jumps to $42,162 — and that's before you consider other costs.
How can you plan for these costs? That's where 529s come in, and with the power of compounding, the sooner you start saving, the easier it will be. A 529 plan is a state-sponsored college education savings account. Withdrawals are tax-free as long as the money is used for qualified educational expenses, which include tuition and fees, books, supplies, and room and board. In addition, two-thirds of states offer an income tax break for contributions to the state’s 529 plan.

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.
Another benefit is that 529s are treated favorably for purposes of financial aid. When a prospective student applies to college, assets that the student owns are usually weighed more heavily than the parent’s assets when determining eligibility for financial aid. However, if the prospective student is a 529 beneficiary or is the owner of a 529 account, assets in the plan are treated as a parent asset, which helps to maximize aid, says Mark Kantrowitz, author of How to Appeal for More College Financial Aid.
Generally, you can invest in any state’s 529 plan regardless of where you live, although a handful of states limit their plans to residents. Investing in your own state’s plan may provide a tax break, but you should also pay attention to fees and investment options when choosing a plan.
To get the most benefit from tax-free growth, you should start investing in a plan as soon as possible. If you make a monthly contribution of $200 for 18 years, for example, with an average gain of 7% a year, you’ll have about $84,000 when the child is ready to enroll in college. You can crunch the numbers yourself with the Bankrate simple savings calculator.
When you invest the funds in your 529, you’ll generally have a choice between a dynamic plan or a static plan. A static 529 plan invests all of your contributions in index funds or a similar portfolio, while a dynamic portfolio — also known as an age-based plan — adjusts the asset allocation each year, becoming progressively more conservative as the first year of college approaches. The age-based allocation typically offers a range of investment strategies, from low-risk to aggressive.
Using your 529 funds
If you withdraw money from a 529 plan for nonqualified purposes, you’ll pay federal income taxes and a 10% penalty on the earnings. However, if it turns out your child doesn’t need all of the money — because he or she decides not to attend college, for example — you can transfer the plan to another relative or name yourself as the beneficiary if you’re interested in pursuing a college degree.
You may also be able to roll unused 529 funds into the beneficiary’s Roth IRA. To qualify for a rollover, the 529 must have been open for 15 years or more, and the amount you can roll over each year is limited to the standard IRA maximum contribution ($7,000 in 2024 for those younger than 50).
There’s also a lifetime cap for Roth IRA rollovers of $35,000 per beneficiary. In addition, the amount you roll over must have been in the account for at least five years, says Mary Morris, CEO of Virginia529. There are also restrictions on the timing of withdrawals. “So even if you’ve had the account for 15 years, you can’t dump a bunch of money in and the next week or the next month move it into a Roth,” she says.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related Content
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.

Emma Patch joined Kiplinger in 2020. She previously interned for Kiplinger's Retirement Report and before that, for a boutique investment firm in New York City. She served as editor-at-large and features editor for Middlebury College's student newspaper, The Campus. She specializes in travel, student debt and a number of other personal finance topics. Born in London, Emma grew up in Connecticut and now lives in Washington, D.C.
-
Stock Market Today: Trump Retreats, Markets Rejoice
Stocks rally, yields soften, the dollar rises, and even beaten-down names enjoy the wages of potential trade peace.
By David Dittman
-
In Trump’s Economy Should 401(k) Savers 'Set It and Forget It?'
It’s hard to bury your head in the sand when the markets are volatile. Here’s when it makes sense and when it doesn’t.
By Donna Fuscaldo
-
Stock Market Today: Trump Retreats, Markets Rejoice
Stocks rally, yields soften, the dollar rises, and even beaten-down names enjoy the wages of potential trade peace.
By David Dittman
-
Tesla Stock Pops as Elon Musk Promises DOGE Draw Back
Tesla reported a sharp drop in first-quarter earnings and sales, as the EV maker suffered a backlash to its CEO's political ambitions.
By Karee Venema
-
Bouncing Back: New Tunes for Millennials Trying to Make It
Adele's mournful melodies kick off this generation's financial playlist, but with the right plan, Millennials can finish strong.
By Alvina Lo
-
Early-Stage Startup Deals: How Do Convertible Notes Work?
Some angel investors support early startups by providing a loan in exchange for a convertible note, which includes annual interest and a maturity date.
By Murat Abdrakhmanov
-
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
-
How Can Investors Profit From AI's Energy Use?
Global energy demand is expected to grow by leaps and bounds over the next several years as AI usage accelerates. Here's how to get a piece of the pie.
By Jacob Schroeder
-
Can Trump Fire Powell? A Supreme Court Case Could Decide
Presidential posts threaten to overwhelm decades of precedent and tradition, whatever the nine justices decide.
By David Dittman
-
What Are AI Agents and What Can They Do for You?
AI agents promise to be the next big thing in artificial intelligence, but what exactly do they do?
By Tom Taulli