Saving for Your Kids College
Saving for a child’s college education can feel overwhelming, especially as tuition costs continue to rise faster than inflation. Many parents and grandparents want to help provide educational opportunities without jeopardizing their own financial security. The good news is that there are several effective savings strategies available, each offering different tax advantages, flexibility, and levels of risk.
One of the most popular options is a 529 College Savings Plan. These state-sponsored investment accounts allow contributions to grow tax-deferred, and withdrawals used for qualified education expenses are tax-free. Qualified expenses typically include tuition, fees, books, housing, and even certain K-12 education costs. Like many employer retirement plans, 529 accounts offer a preset menu of investment choices.
Many states also offer state income tax deductions or credits for contributions. Louisiana offers a state tax deduction of $2,400 per individual and $4,800 for married filing jointly. Anyone can contribute to a child’s 529 account: parents, grandparents, uncles, cousins. The annual limitation for 529 funding is the same as the annual gifting limitation, which is $19,000 for 2026. This limitation applies to each donor. Families can contribute more than the annual limit, although larger gifts may count toward federal lifetime gift-tax exemptions.
Example: Dad’s parents contribute $38,000 to Johnny’s 529 account and receive a Louisiana state tax deduction of $4,800. In the same year, mom’s parents do the same, which means a total of $76,000 is in Johnny’s 529 account.
The IRS also allows for “superfunding,” which is stacking five years of 529 funding in a single year. This means individuals can contribute up to $95,000 at once, while married couples can contribute up to $190,000 per beneficiary in a single year. Choosing the superfunding option generally prevents that donor from making additional 529 contributions to the same beneficiary for the next five years.
Example: Dad’s parents contribute $190,000 to Johnny’s 529 account and receive a Louisiana state tax deduction of $4,800. In the same year, mom’s parents do the same, which means a total of $380,000 is in Johnny’s 529 account, and each set of grandparents is unable to make 529 contributions to Johnny for five years. 529 plans also offer valuable flexibility. If one child does not use the funds, the account beneficiary can often be changed to another family member. As long as the family member falls into the Louisiana START list of allowable family members, the change of beneficiary is free of any penalties or taxation.
For families seeking more control over investments, a Coverdell Education Savings Account (ESA) may be worth considering. Coverdell accounts also offer tax-free growth and tax-free withdrawals for qualified education expenses. However, they come with lower annual contribution limits and income restrictions for contributors. The advantage is broader investment flexibility and the ability to use funds for elementary and secondary school expenses.
Some families choose to use Custodial Accounts under the Uniform Transfers to Minors Act (UTMA) or Uniform Gifts to Minors Act (UGMA). These accounts allow assets to be transferred to a child and managed by an adult until the child reaches legal adulthood. While they provide flexibility because funds can be used for any purpose benefiting the child, they do not offer the same tax advantages as 529 plans. Additionally, custodial assets are considered the child’s property and may have a greater impact on future financial aid eligibility.
Another increasingly common strategy is incorporating college savings into a broader investment portfolio. Some parents use brokerage accounts to build wealth earmarked for future education expenses. This approach offers maximum flexibility because the funds are not restricted to education-related costs. However, investment earnings are taxable, and there are no education-specific tax benefits.
While saving for college is important, parents should avoid sacrificing retirement savings in the process. Unlike college expenses, retirement cannot be financed through loans or scholarships. A balanced financial plan should prioritize long-term financial security while steadily contributing toward education goals.
Ultimately, the best college savings strategy depends on a family’s income, tax situation, investment goals, and time horizon. The earlier families begin planning, the more time they have to take advantage of compound growth and reduce the burden of future education costs. Working with a financial advisor can help families evaluate options and create a personalized plan that balances education goals with overall financial wellness.
Matt Stephens, CFPÒ, CKAÒ, EA, MBA
Owner / Financial Advisor
227 Fairburn Ave, Suite A, Benton, LA 71006
