College Planning in Full Swing: What Parents Should Be Doing Right Now

As a new school year approaches, many families begin thinking more seriously about college planning. Whether your child is years away from applying or already narrowing down their options, understanding your savings and funding choices today can help reduce financial stress in the future.

Start with a 529 Plan

For many families, a 529 plan is one of the most effective ways to save for education. Investments grow tax-free, and withdrawals are tax-free when used for qualified education expenses such as tuition, room and board, books, and certain other costs. Although California does not offer a state income tax deduction for contributions, the federal tax advantages and long-term growth potential still make these plans attractive.

If you're unsure whether your child will attend college, recent legislation provides additional flexibility by allowing certain unused 529 funds to be rolled into a Roth IRA under specific conditions.

To help maximize your savings:

• Start early and contribute consistently.
• Encourage grandparents to contribute as part of their gifting strategy.
• Review your investment allocation as college approaches.
• Remember that 529 funds can be used for many qualified colleges, graduate programs, and certain vocational schools.

Explore Other Savings Strategies

While 529 plans are popular, they aren't the only option. Some families consider UTMA or UGMA custodial accounts because they offer greater flexibility. However, these accounts also come with tradeoffs: assets transfer directly to the child at adulthood, investment gains may create tax consequences, and grandparents lose long-term control over how the funds are ultimately used.

Another option some families may consider is a Trump Account, a new tax-advantaged savings vehicle for children. Eligible children born between 2025 and 2028 may receive a $1,000 federal seed contribution, and families can make additional contributions over time. However, unlike 529 plans, these accounts are generally designed for long-term wealth building and retirement-style savings rather than specifically for education expenses, so it's important to understand how they fit within your overall college funding strategy.

Depending on your family's goals, it may make more sense to retain assets personally, pay educational expenses directly, or incorporate education funding into a trust or estate plan.

Don't Overlook Financial Aid

College funding isn't just about savings. Financial aid, scholarships, and grants can also play an important role. Completing the FAFSA early and understanding how income and assets are treated can help maximize available aid. Even families who don't expect need-based assistance should explore merit scholarships and institutional programs.

It's also important to have open conversations about expectations. Discuss potential schools, budgets, student loans, and the level of financial support parents plan to provide before application season begins.

Balance College with Your Other Financial Goals

Paying for college is a meaningful investment, but it shouldn't come at the expense of your own financial future. Every college savings strategy has different tax implications and may affect financial aid eligibility, so it's important to evaluate how education planning fits into your broader financial plan.

The best strategy is one that balances helping your children achieve their goals while keeping you on track to achieve your own.

*529 plans come with fees and expenses, and there is a risk they may lose money or underperform. Most states offer their own 529 programs, which may provide benefits exclusively for their residents. Please consider whether the state plan offers any tax or other benefits. Tax implications can vary significantly from state to state.