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You know that your child’s college education is likely to cost a lot more than yours did if current trends continue. By one estimate, the projected bill for tuition, room, and board 2044 (18 years from now) could be almost $375,000 for if college costs increase by 7 percent annually.
Planning for this expense as far in advance as possible is critical. There are a range of ways to save, but 529 plans tend to be the most popular.
There are two types of 529 college savings plans: 529 savings plans and 529 prepaid tuition plans.
Learn about the pros and cons of each option below. But first use the MassMutual college savings calculator to see how much you might need to set aside.
529 savings plans — Pros and cons
What to know: State-run 529 savings plans are designed to help make higher education more affordable. They offer a state income tax break on contributions in more than 30 states. They also offer federal and state tax breaks on account growth. What they don’t offer is a federal tax break on contributions. They do come with another big tax benefit: Withdrawals used for qualified educational expenses, such as tuition, fees, books, and supplies, are generally not taxed, especially at the federal level. IRS Publication 970 explains the rules in more detail.
These accounts are popular for good reason. Along with their tax benefits, 529 plans typically have a limited impact on a student’s college financial aid. Only about 5 percent of 529 plan assets, whether they’re held in the child’s name or the parent’s name, will be counted toward the family’s expected contribution to college costs.
Lifetime contribution limits to 529 plans are $269,000 to $675,000 per beneficiary, depending on the plan and the state, said Mark Kantrowitz, a nationally recognized expert on student financial aid, scholarships, and student loans. Most states have at least one plan, and because of the differences among plans, you might find that the most beneficial choice for your situation is not administered by your home state.
Options and control: Another benefit of 529 savings plans is that they allow parents to control the money if the child doesn’t attend college. Funds can be held until a later date in case the original beneficiary has a change of heart. They can also be transferred to a different beneficiary, such as a sibling, grandchild, or even a parent. And they can be saved for graduate school. (Learn more: Alternatives for 529 college savings)
The One Big, Beautiful Bill Act (OBBBA) also expanded 529 plan benefits by allowing funds to be used for broader educational expenses, including K-12 tuition and supplies, homeschooling, educational therapies for disabled students, and postsecondary career training like apprenticeships and licensing. Beginning Jan. 1, 2026, account owners can use 529 plan savings of up to $20,000 per year per beneficiary for qualified elementary and secondary education expenses, up from $10,000 in 2025. Up to $35,000 in unused funds can also now be rolled over into Roth IRAs. (Related: 529 transfers to a Roth IRA)
While starting early provides more opportunity for contributions to grow through investing, it’s rarely too late to start.
Parents who have savings in a different account and want to enjoy the tax and financial aid advantages of a 529 plan may front load the plan with annual exclusion gifts. The annual gift tax exclusion — the amount of money that one person may transfer to another as a gift without incurring a gift tax — is $19,000 per donor per beneficiary in 2026. Married couples can combine their limits and gift $38,000 per year per beneficiary.
But with a 529 plan, individuals may front load their contributions up to $95,000 ($190,000 for couples) per beneficiary and treat as if it were spread over a five-year period. To avoid gift tax implications, parents may need to avoid giving other gifts to the same beneficiary for the next five years. Parents might consider working with a tax professional for guidance when making these decisions.
The age-based funds offered by many 529 savings plans allow for a set-it-and-forget-it approach to investing. The fund will invest more aggressively when the child is young and transition to a more conservative portfolio as the child approaches college age. If you’re familiar with target-date funds for retirement, the concept is similar.
Cons: You may have heard that 529 plans have some potential drawbacks, as most financial products do.
First, 529 savings plans come with different options and investment choices. One size does not fit all, so to speak. Therefore, you’ll want to do careful research or work with a financial professional. Find the plan that could give you the best combination of tax benefits, high-quality investment options, and low fees.
Second, you’ll want to be mindful of the potential tax penalties. If you withdraw the money for a purpose other than qualified education costs, you may owe income tax plus a 10-percent additional tax on withdrawn earnings. Federal income tax and penalties typically do not apply to withdrawn contributions, but any state tax breaks on contributions may have to be repaid.
529 prepaid tuition plans — Pros and cons
The basics: 529 prepaid tuition plans let parents pay in advance for education at a particular university or group of universities. Payment is based on current tuition rates.
It could make sense to choose one of these plans if you think tuition costs will rise faster than inflation and if you want to avoid the risks associated with stock and bond investing. However, you will want to be aware of these plans’ limitations as well as their benefits.
529 prepaid tuition plans are far less popular than 529 savings plans. At the end of 2025, both types of 529 plans combined held a total of $603 billion in assets, according to the Investment Company Institute.1
Of that total, $577 billion was held in 529 savings plans. Only $26 billion was held in 529 prepaid tuition plans. Their lower popularity may be attributable to their reduced flexibility and availability compared with 529 savings plans.
There are currently 18 states that offer prepaid tuition plans, but only 7 are accepting new applications, according to Savingforcollege.com
Unlike 529 savings plans, you may need to be a resident of one of those states to participate in its prepaid tuition plan.
For those with private school ambitions, the Private College 529 Plan offers a prepaid tuition plan for nearly 300 private universities across the United States. Included in the program are standouts such as Stanford, MIT, Spelman, and Princeton. Not all participating schools are elite institutions. Prepaid tuition credits do not affect admission choices by member schools.
What happens if you want a refund of your prepaid tuition credits? Your options depend on the plan.
The Private College Plan allows you to change the beneficiary, do a rollover to another 529 plan, or get a refund. Like 529 savings plan withdrawals, prepaid plan refunds may be subject to taxes and penalties.
With the state college savings plans, options for redirecting or refunding prepaid tuition vary by plan, but you do have options.
Other savings vehicles
529s aren’t the only college savings options. The alternatives are less popular, but may be of interest to some families.
Coverdell Education Savings Accounts (ESAs): Coverdell ESAs offer the same federal tax breaks as 529 savings plans but do not offer any state tax breaks. As the account balance grows, you’ll owe state income taxes on the earnings. Also, like 529 savings plans, you’ll pay a 10 percent penalty on earnings withdrawn for purposes other than education. ESAs can be used for K–12 education as well as higher education.
Besides their tax treatment, these accounts have other important differences from 529 plans. They have a low contribution limit of $2,000 per year per beneficiary. The IRS imposes an income phaseout on contributions. Also, contributions can’t be made after the beneficiary turns 18 (except for special-needs beneficiaries). And parents control the account only until the beneficiary turns 30. (Learn more about Coverdells)
UGMAs and UTMAs: Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts are sometimes used to achieve tax savings by transferring assets from a higher-taxed parent to a lower-taxed child. Unlike 529s and ESAs, they do not offer state or federal tax breaks for college. They do allow for large contributions, though it’s important to be aware of gift-tax implications. Investment options are nearly limitless, too.
While the child is a minor, the parent can use the money in the account to pay for expenses that benefit the child. The child gains full control over the account upon reaching the age of majority (usually 18 or 21 depending on the plan and state) and may not use the money how parents wish they would.
“In general, we try to steer away from using UGMA and UTMA accounts unless there is a unique circumstance,” said CERTIFIED FINANCIAL PLANNER® professional Adam Beaty of Bullogic Wealth Management near Houston. “The reason we steer away from UGMA and UTMA accounts is that they are considered the child's assets. This is problematic when trying to receive financial aid.”
Colleges expect about 20 percent of the balance in these accounts to be used toward college expenses.
However, a family that is so wealthy that they will not qualify for financial aid may gain modest tax savings from using these accounts to save money in the child’s name, Kantrowitz said.
Conclusion
Research from the Education Data Initiative revealed that only 32 percent of families who are saving for college take advantage of a 529 plan.
Those who do, however, can potentially help put their child’s college goals within easier reach.
A MassMutual financial professional can help you determine how best to put your college savings to work.
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Frequently asked questions about 529 college savings accounts vs. 529 prepaid tuition plans
Q: What is the main difference between a 529 savings plan and a 529 prepaid tuition plan?
A: A 529 savings plan invests your contributions for tax-free growth that you can use at nearly any accredited college, while a 529 prepaid tuition plan lets you lock in today's tuition rates at specific (usually in-state public) colleges. Savings plans offer flexibility and growth potential; prepaid plans are designed to lock in future tuition costs but limit your school choices.
Q: Which 529 plan is better for most families?
A: There is no right answer. Most families, however, choose a 529 savings plan because it can be used at almost any accredited school and covers a wide range of expenses, including room and board. A prepaid tuition plan can be a smart fit if you're confident your child will attend an in-state public university and you want to lock in today's tuition rates.
Q: Do 529 plans hurt financial aid?
A: The impact is usually small. A parent-owned 529 plan reduces federal aid eligibility by about 5 percent of the account's value. Under the FAFSA Simplification Act, distributions from grandparent-owned 529 plans no longer count as student income, so they don't reduce aid.
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Discover more from MassMutual...
529 college savings plans underutilized by many families
Getting the most out of your 529 plan
A primer on college financial aid
Need a financial professional? Find one here
This article was originally published in September 2019. It has been updated.
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1 Investment Company Institute, “529 Plan Program Statistics,” March 4, 2025.”
