Jonathan Sparling, vice president of strategic partnerships at CollegeWell, a nonprofit organization providing resources on saving for college and sponsor of the Private College 529 Plan, shared insights on saving for college and protecting against the rising costs of private higher education. The responses have been lightly edited for length and clarity.
U.S. News: National 529 Day is this week, and many families may be reassessing their college savings. For parents who are new to this, how do 529 plans work, what are the pros and cons of opening one earlier versus later and how are they different from a traditional savings account?
Jonathan Sparling: Think of a 529 like a Roth IRA for school. You put in money you’ve already paid taxes on, it grows tax-free, and when you spend it on education, you don’t owe federal taxes on the earnings. A regular savings account simply can’t do that.
- There are two main types of 529s. One is a savings/investment-based plan that lets your money grow with the market, similar to how a regular investment account works. A prepaid plan is different; you’re essentially buying tomorrow’s tuition at today’s price.
- Starting early is a real advantage. More time means more growth – or in the case of a prepaid plan, more tuition locked in before prices rise. But even starting later gives you a focused way to set college money aside.
- For families with private colleges on the radar, there’s an option called Private College 529 Plan. It’s a prepaid plan backed by nearly 300 private colleges and universities, from Stanford University to Spelman College. Any family can lock in a portion of current tuition at all participating colleges to protect against tuition inflation.
- The most important move? Just start. Even small contributions add up, and any amount helps offset future costs.
U.S. News: One of the biggest fears parents have is “overfunding” – worrying about what happens to the money if their child gets a full scholarship or opts not to attend college. What happens to 529 funds in those scenarios?
Sparling: The short answer: 529s are far more flexible than most families realize. The “use it or lose it” fear that keeps many families from starting is largely a myth.
- If your child earns a full scholarship, you can withdraw an equivalent amount from your plan without penalty. You’d still owe income tax on the earnings, but your original contributions are always yours, no strings attached.
- If your child decides college isn’t for them, you can change the beneficiary to another family member – a sibling, a cousin, even yourself – and use the funds for their education instead.
- Recent federal rules allow for unused 529 funds to be rolled into a Roth IRA in your child’s name (up to $35,000 lifetime). Money you saved for college could become a head start for retirement instead.
- For anyone considering this option, here are a few things to know. First, the account needs to have been open for at least 15 years. Second, eligible rollover funds must be invested in the 529 for a minimum of five years. Finally, annual rollover amounts are subject to standard Roth contribution limits.
U.S. News: While traditional 529 savings plans are tied to market performance, prepaid 529 plans enable families to lock in current tuition prices. How does a plan like the Private College 529 Plan maintain flexibility if a child’s idea of their dream school changes?
Sparling: This is the question families ask most, and it’s exactly where Private College 529 Plan stands apart from state prepaid plans.
- The PC529 network is broad by design, and families are saving at all member colleges simultaneously. With nearly 300 member institutions, there’s likely a school in the plan that fits wherever your child lands.
- If your child chooses a path outside the network, your savings don’t disappear. You can roll the funds into a traditional 529 savings plan, redirect them to a sibling or another family member, or roll them into a Roth IRA for your child, subject to IRS limits. In any of these cases, PC529 will return your full contributions plus net returns of up to 2% annually.
- Every dollar you save will support your child’s future – whether that’s a degree from a member school, a different educational path or a retirement account.
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