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How a 529 Plan Can Set Up Your Children for Long-Term Success

By Kristin Hoppe

May 11, 2021

Saving for your child's (or children's) school tuition is a daunting task. The average college in the US cost $35,720 per student each year. That amount has tripled over the period of 20 years.

Even with only one child in the mix, that's a staggering amount to pay out of pocket when the time comes. So, what can you do if you want to help out your child and prevent them from graduating deeply in debt?

Many parents and guardians turn to 529 plans. The name comes from section 529 of the tax code, which allows you to save money in qualified plans that are usually exempt from taxes.

What is a 529 plan?

Before you can open up an account, it's important to understand the difference between the two types of plans and determine which is the best fit for your family.

529 plans started out to help cover undergrad and postgraduate college and university costs. They have since been expanded to cover K-12 education and apprenticeship programs. Some plans may even offset the costs of elementary or secondary school.

When you're deciding between plan types, it's also important to research which benefits are available in your state. Some states have their own savings plans, rules, and regulations governing how accounts may be used. States may also offer more than one 529 plan, which is why it’s important to evaluate your options.

Plan Types 

Plan 1: Prepaid Tuition Plans

Investment type:

  • Allows an account holder to buy units or credits at participating colleges and universities

Specifically for:

  • Units or credits at participating colleges and universities (usually public and in-state)

  • Used for future tuition and mandatory fees at current prices

  • Usually sponsored by state governments

  • Have residency requirements

  • Not guaranteed by the federal government

Fees and expenses:

  • Enrollment/application fee

  • Ongoing administrative fees


  • Prepaid tuition secures cost at current rates

Prepaid tuition plans are a great way to secure payment for tuition in advance, before the cost becomes more inflated over the years. However, they usually vary a large amount by state and cover a more narrow subset of colleges.

Prepaid tuition plans also typically don't cover future room and board, and you can't prepay tuition for elementary and secondary schools through this type of plan. This might be the right type of plan for your family if you feel like the benefits of prepaid tuition outweigh the wider array of options in education savings plans.

Education Savings Plans
Investment type:

  • Investment portfolio options

Specifically for:

  • Qualified higher education expenses, including tuition, mandatory fees, room and board

  • Can be used for any college or university (sometimes non-US universities)

  • Can be used to pay up to $10,000 per year for tuition at public, private, or religious elementary/secondary school

Fees and expenses:

  • Enrollment/application fee

  • Annual account maintenance fees

  • Ongoing program management fees

  • Ongoing asset management fees


  • Investments grow tax-deferred

  • Withdrawals tax-free if used for qualified expenses

In general, education savings plans offer a wider array of options, both in how they can be used and where. Unlike prepaid tuition plans, education savings plans allow you to use investment account money towards both public and private colleges and universities, and covers things like room and board.

They also have a wide degree of flexibility by investment type. You can choose investment portfolio options like exchange traded funds (EFTs), mutual funds, age-based portfolios, and static fund portfolios. How you select your investment options are largely based on when you want to access the money and the degree of risk you're willing to take.

Overall, if you want your child to have a wide level of flexibility around where they may attend school, this type of plan could be the best fit for you.

What if I don't end up using the money?

Children don't always go to college or stay in college as planned. Or, they may attend college but get a significant amount of scholarships or simply not need all of the money that's left in the account.

In this case, you still have the ability to withdraw from the account at a 10% penalty, in addition to any taxes you may owe from the withdrawal.

Time is of the essence

Whichever plan you choose, acting early will benefit you and your family. Investing early allows money to grow, and paying tuition early prevents paying inflated prices. The longer you wait, the bigger the costs will add up.

Trustworthy Can Help

Trustworthy is the Family Operating System®, an online service that helps your family curate, manage and securely share your important family information so that you have peace of mind, no matter what the future holds.

Our concierge can direct you towards 529 plans that are the best fit for you and your family. You can learn more about Trustworthy here.