College Savings Strategies for Parents: A Simple Plan Your Family Can Stick To

Why Starting Early Matters

The earlier you begin, the more your money can benefit from compounding. Even small monthly contributions can grow into a meaningful cushion over 10 or 18 years. Many experts suggest treating college savings like a regular bill—something you schedule and pay first, rather than an afterthought. The goal does not need to be "pay for everything." Often, saving enough to cover part of the cost may help reduce reliance on student loans.

Use the Right Accounts

Several account types are available for college savings, each with its own rules, tax treatment, and trade-offs. Prepaid tuition plans, available in some states, let you lock in today's tuition rates at participating schools—a useful hedge against future price increases. The sections below walk through the most common options in detail.

529 Plans: The Cornerstone of Most College Savings Strategies

If there is one account many families consider, it is the 529 plan. Named after the section of the tax code that governs it, a 529 is a tax-advantaged savings account designed specifically for education expenses. Money you contribute grows over time, and as long as withdrawals are used for qualified expenses, you generally are not subject to federal income tax when used for qualified education expenses.

How a 529 Works

You open the account, name a beneficiary—typically your child—and start contributing. The money is invested in mutual funds or age-based portfolios that automatically shift toward more conservative investments as your child approaches college age. Anyone can open or contribute to a 529, making it easy to redirect birthday money, holiday gifts, or other windfalls straight into the fund.

What Counts as a Qualified Expense?

Qualified expenses go well beyond tuition. They include:

• Tuition and fees at colleges, universities, and vocational schools
• Room and board for students enrolled at least half-time
• Books, supplies, and required equipment
• Computers and technology used for school
• K-12 tuition up to $10,000 per year
• Apprenticeship program costs registered with the U.S. Department of Labor
• Student loan repayment up to $10,000 over a lifetime

Contribution Limits and Gift Tax Considerations

Contributions are treated as gifts for tax purposes. The annual gift tax exclusion is currently $18,000 per person per beneficiary—$36,000 for married couples giving together. There is also a strategy called superfunding, or five-year gift tax averaging, that allows a lump-sum contribution of up to $90,000 per individual ($180,000 per couple) without triggering gift tax. No additional gifts can be made to that beneficiary for five years, and the contribution must be reported on a gift tax return. For families with the means to do it, superfunding is a powerful way to jump-start a college fund and reduce a taxable estate at the same time.

Investment Options Inside a 529

Most plans offer individual fund choices and age-based portfolios. Age-based options automatically shift from growth-oriented investments when your child is young to more conservative ones as college approaches—a sensible default for parents who prefer a hands-off approach.

How 529s Are Treated for Financial Aid

A 529 owned by a parent is reported as a parental asset on federal aid applications, assessed at a maximum rate of about 5.64 percent. A custodial account like a UTMA or UGMA is counted as the child's asset and assessed at up to 20 percent—a meaningful gap for families expecting to apply for aid.

What If the Money Goes Unused?

Withdrawals for non-qualified expenses trigger federal income tax plus a 10 percent penalty on earnings—but there is more flexibility than most people realize. If your child earns a scholarship, you can withdraw an equivalent amount without the penalty, though earnings are still taxable. You can also change the beneficiary to any family member at anytime. And under SECURE Act 2.0, unused funds can now be rolled over into a Roth IRA for the beneficiary—covered in detail in the section below.

The 529 is not a perfect fit for every family, but for most parents saving specifically for education, the combination of tax-free growth, flexible use, and expanding options for unused funds makes it an effective option depending on circumstances.

A Note for Georgia Families

Contributions to the Georgia Path2College 529 Plan may qualify for a state income tax deduction—up to $4,000 per beneficiary per year for single filers and up to $8,000 for married couples filing jointly, with unused deductions carried forward to future years.

This deduction applies only to the Georgia Path2College plan. If you are currently contributing to an out-of-state 529, it may be worth reviewing whether a switch makes sense given your investment options, fees, and overall tax situation. If you have not looked closely at Path2College yet, it is a conversation worth having.

A Note for North Carolina Families

North Carolina does not offer a state income tax deduction for 529 contributions—the deduction was eliminated in 2014 and has not returned. That said, NC still follows federal tax treatment, meaning earnings grow tax-deferred and qualified withdrawals are not subject to state income tax. Because there is no state incentive tied to a specific plan, NC families are free to choose whichever 529 offers the best investment options and lowest fees. North Carolina's own option—the NC 529 Plan, administered through the College Foundation of North Carolina—has no enrollment fees and competes on merit rather than tax preference.

One additional note: under North Carolina's UTMA rules, the default age at which a minor takes full control of a custodial account is 21, rather than 18 in some states.

SECURE Act 2.0: The 529-to-Roth IRA Rollover

Starting in 2024, the SECURE Act 2.0 allows unused 529 funds to be rolled over into a Roth IRA in the name of the 529 beneficiary—turning money saved for education into a head start on retirement savings if plans change. There are a few conditions to keep in mind:

• The 529 account must have been open for at least 15 years
• The lifetime rollover limit is $35,000 per beneficiary
• Rollovers count toward the annual Roth IRA contribution limit for that year
• Contributions made within the last five years—and their earnings—are not eligible

This provision, combined with the expanded list of qualified expenses, makes over-saving in a 529 much less of a concern than it used to be.

UTMA Accounts: What Parents Should Know

A Uniform Transfers to Minors Act (UTMA) account lets an adult hold and manage assets on behalf of a child. The assets legally belong to the child, but the custodian controls investments and spending until the child reaches the age of majority—usually 18 or 21 depending on the state. UTMAs can hold a wide range of investments—cash, stocks, bonds, mutual funds, and even real estate—and the money can be used for anything that benefits the child, not just education. One downside: UTMA assets are counted as the child's when calculating financial aid, which may reduce eligibility.

UGMA Accounts: A Simpler Alternative

A Uniform Gifts to Minors Act (UGMA) account works similarly but is generally more limited in asset types—typically restricted to cash, securities, and liquid investments. Like a UTMA, the assets are owned by the child, managed by the custodian until the age of majority, and then fully controlled by the child for any purpose. That flexibility can be a plus or a risk, depending on your confidence in your child's future financial decisions.

How UTMA and UGMA Compare With 529s

UTMA and UGMA accounts are not tax-advantaged in the same way as 529 plans. Earnings may be taxed each year, and large balances can reduce financial aid eligibility because they are treated as the child's assets. In contrast, 529 plans offer tax-free growth for qualified education expenses and are usually reported as parent assets, which tend to have less impact on aid formulas.

Parents who want maximum flexibility for how the money is used may prefer a UTMA or UGMA, while those focused specifically on college often prefer a 529. Some families use a mix—a 529 for core college costs and a custodial account for smaller, more flexible savings.

Make Saving Automatic

Consistency matters more than the size of each contribution. Automated monthly transfers from checking to a college savings account make it easier to stay on track. If your budget is tight, start small—$25 or $50 per month—and increase it whenever you get a raise, a bonus, or cut a non-essential expense. Automation also removes the temptation to "wait until later," which can easily become "never."

Build Around Your Budget

Before deciding how much to save, take a fresh look at your household budget. Small changes—eating out less, cutting subscriptions, postponing big purchases—can free up enough cash to build a steady college fund without sacrificing your lifestyle. Set a realistic goal you can maintain for years, and if your situation changes—a job loss, unexpected expenses, or a windfall—adjust the target rather than abandoning it entirely.

Involve the Whole Family

College savings do not have to be a solo effort. Grandparents, aunts, uncles, and close friends often want to help but may not know how. Guide them to contribute to a 529, UTMA, or UGMA instead of one-time gifts, or set up a system where special-occasion cash goes straight into the college fund. It grows savings faster and helps children see education as a shared family value.

Keep Your Plan Flexible

College costs are hard to predict, and financial aid can change year to year. Pair savings with other resources—scholarships, grants, work-study, and student earnings—and complete the required financial aid forms when the time comes. If your child chooses a less expensive school, earns a scholarship, or starts at community college, a flexible plan lets you adjust without starting over.

A Simple Strategy Parents Can Follow

Start early, choose a tax-advantaged account like a 529, take advantage of state-specific benefits where they apply, consider a UTMA or UGMA for additional flexibility, automate contributions, and adjust as your goals evolve. Involve family when possible, and remember that every dollar saved now is one fewer your child will need to borrow later.

By treating college savings as a steady, long-term habit instead of a last-minute effort, parents can make higher education feel more within reach.

Have questions or want to talk through what makes sense for your family? We would love to help—reach out anytime to set up a conversation.

Disclosures

This newsletter is for informational and educational purposes only and does not constitute personalized investment, tax, or legal advice. Please consult a qualified financial advisor, tax professional, or attorney before implementing any financial strategy. Investing involves risk, including the potential loss of principal. Past performance is not a guarantee of future results.

529 plans are subject to plan-specific terms, contribution limits, and investment risk. Tax benefits vary by state and are not guaranteed. Withdrawals for non-qualified expenses may be subject to federal and state income taxes and a 10% federal penalty on earnings. Qualified expense information reflects current IRS guidelines and is subject to change. Review a plan's offering documents carefully before investing. Five-year gift tax averaging requires a gift tax return and precludes additional gifts to the same beneficiary during the election period. Consult a qualified tax or estate planning advisor before making large lump-sum contributions.

The Georgia Path2College deduction applies only to contributions to that plan, reflects current guidelines, and is subject to change. North Carolina does not currently offer a state income tax deduction for 529 contributions. Consult a qualified tax advisor regarding your specific state tax situation.

The SECURE Act 2.0 529-to-Roth IRA rollover provision is subject to eligibility requirements including account age, annual contribution limits, and lifetime rollover caps, based on legislation effective January 1, 2024, and subject to IRS guidance and potential future legislative changes. Consult a qualified advisor before initiating any rollover.

UTMA and UGMA accounts are subject to state-specific rules. Assets are irrevocable gifts treated as student assets for financial aid purposes, which may reduce eligibility. Earnings may be subject to the kiddie tax. Once the minor reaches the age of majority, they assume full control of the account and its assets.

JT Stratford is a Registered Investment Adviser. Registration does not imply a certain level of skill or training. This material is for informational purposes only and is not an offer or solicitation to buy or sell any security.