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We all need money management advice. Whether you’re an experienced investor or a young adult trying to purchase your first-time home, MassMutual’s team is here to help.
Today’s insights on planning ahead for college costs come from Paul Tokarz, co-managing partner of WestPoint Financial Group in Chicago, Illinois.
Q. College costs are considerable, averaging roughly $25,000 per year for tuition, fees, housing, and food at in-state public universities.1 And those costs will continue to climb. What advice do you have for parents who are trying to save?
A. College planning is one of the most stressful and complicated parts of financial planning for many new parents. This is partly due to inconsistent policies around how federal student loans are treated. Some parents think the government will bail out future generations, while others have zero faith in the government to help in this space at all.
For parents who want to plan ahead, we recommend considering 529 college savings plans as soon as their child is born or as early as possible — especially in states that offer an income tax deduction for 529 contributions.
It’s hard to find a financial vehicle that is more tax efficient than a 529, specifically for college funding. [529 college savings plans are funded with after-tax dollars and invested for growth. The earnings grow tax-deferred, and withdrawals become tax-free if used for qualified education expenses.] (Learn more: 529 investment strategies explained)
It was previously the case that earnings in a 529 plan that were not used for college were subject to federal income tax, plus a 10 percent additional tax — although funds can be transferred to siblings or other family members. But SECURE Act 2.0 eased some of the concerns of overfunding a 529 account and offered more flexibility.
Presently, as long as the 529 account has been open for 15 years, the parent (or individual who funded the account) can transfer up to $35,000 of unused 529 savings to a Roth IRA in the beneficiary’s (student’s) name. This has helped ease some concern for parents about potentially overfunding their 529 account. (Learn more: What happens to 529 funds if they’re not used for college?)
[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 January 1, 2026, account owners can use 529 plan savings for up to $20,000 per year in qualified elementary and secondary education expenses.]
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Discover more from MassMutual…
Getting the most out of your 529 plan
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Pros and cons of using other savings accounts as 529 plan alternatives
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