“What Should We Be Doing to Save for College?”
Christopher Mallon
June 3, 2025
A few weeks ago, a longtime client named Josh called us with news — his wife had just given birth to their first child, a daughter named Claire. “We’re exhausted,” he said, laughing. “But also, weirdly, energized. It’s like… now we have to figure everything out.”
“We want to do the responsible thing,” he said. “Start early. What are our options?”
We get this question often. And it’s a great question. Because the decisions you make in year one can echo into year eighteen, especially when it comes to how you save and invest for a child’s education.
Here’s what we walked Josh through.
Option 1: 529 Plan — The Workhorse
We started with the 529 plan. It’s the most popular vehicle for college savings — and for good reason.
Pros:
- Tax-free growth and withdrawals1 when used for qualified education expenses
- You can change beneficiaries1 within the family if one child doesn’t use all the funds
- New rules allow up to $35,000 in unused 529 funds1 to be rolled into a Roth IRA for the beneficiary (with caveats)
The kicker: You can superfund a 529 — front-load five years’ worth of annual gift tax exclusions into a single year. That’s $90,000 per parent (or $180,000 total from a married couple) in 2025, assuming the $18,000 gift tax exclusion remains in place.
Josh paused. “Wait — we could drop a six-figure contribution in now and be done?”
“Exactly,” we said. “Now, you’ll need the liquidity to make it happen, but it’s a powerful option.”
Cons:
- Funds must be used for education to retain the tax advantages
- Investment choices are limited to what’s available in the plan
- If withdrawn for non-educational purposes, earnings are subject to tax and a 10% penalty1
- Counts as a parental asset on the FAFSA1, which is good — because those are assessed at a much lower rate (about 5.6%) than student-owned assets
Option 2: Custodial Brokerage (UGMA/UTMA) — More Flexibility, Less Tax Breaks
Next, we talked about custodial accounts. These are brokerage accounts opened in the name of a minor, with the parent (or another adult) acting as custodian.
Pros:
- No restrictions on what the money is used for1 — could be college, a house or car down payment, launching a business, etc.
- A wide array of investment choices
- May be a good fit if you want your child to have access to funds even if they don’t attend college
Cons:
- Once Claire reaches the age of majority (usually 18 or 21, depending on the state), the money becomes hers — full control, no strings attached
- Any earnings above $2,600 (2025 threshold for unearned income) can be taxed at the parent’s rate due to the kiddie tax1
- Counts as a student asset on the FAFSA — and therefore is penalized much more heavily (up to 20%)
Josh raised an eyebrow. “So, if Claire decides to backpack through Patagonia instead of going to college…”
“She can absolutely do that,” we said. “And she might do it with your money.”
So, What’s the Move?
There’s no one-size-fits-all answer. For most clients, a 529 is the anchor — tax-advantaged, college-focused, FAFSA-friendly. But for families who want more flexibility, layering in a custodial account — perhaps with more modest funding — can give your child options later in life.
In Josh’s case, we suggested starting with a monthly 529 contribution, automating it to stay consistent. We also encouraged them to revisit the idea of super funding in a few years once they had more clarity around their cash flow and long-term planning.
The Big Picture
Planning for college before your child can even sit up might feel premature. But here’s the truth: time is the single most powerful variable in your corner. Not just because of compounding returns, but because early decisions give you flexibility later.
Josh is doing the smart thing — asking the right questions now. And when Claire eventually walks across that graduation stage, he’ll know he gave her something even more valuable than tuition: a head start.
Footnotes
- https://www.investopedia.com/what-is-an-utma-ugma-529-plan-and-do-you-want-one-5075913
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