What is a 529 plan, and how much should I save for college?
Education costs have outpaced inflation for decades. Most parents either avoid thinking about it or assume they'll figure it out later — which usually means debt. There's an account built specifically for this, and it covers far more than four-year college.
$200/month for 18 years
$86,000
From $43,200 contributed, at 7%
Withdrawals for education
Tax-free
Federal, on qualified expenses
If they don't use it
Roth IRA
Unused funds can roll over
This is part of a series on personal finance and investing — the foundation people build before they start buying assets like real estate.
I have a freshman in high school, so this one isn't abstract for me. The conversations we're having now are shaped entirely by what's been set aside, and that's the real argument for starting early: it's less about the money and more about the options it creates.
What a 529 actually is
An investment account designed specifically for education. You contribute after-tax money at the federal level, it gets invested and grows, and when it's used for qualified education expenses the withdrawals are tax-free.
Depending on your state, contributions may earn a state income tax deduction or credit. In Nevada that's moot — no state income tax — but the federal treatment still applies.
The structure is close to a Roth IRA: after-tax in, tax-free out. And like a Roth, most people understand it at surface level and never dig into how it actually plays out.
Who it can be for
Your own children, but also nieces, nephews, grandchildren, godchildren. There are very few restrictions.
You can also change the beneficiary. If one child earns a full scholarship and doesn't need it, redirect the money to a sibling or another relative who does.
You can contribute up to $19,000 per year per beneficiary without triggering gift tax reporting. That threshold adjusts periodically, so confirm the current figure.
Tuition has outrun inflation for a generation
| Annual tuition | 2016 | 2026 | Change |
|---|---|---|---|
| UNLV | $6,800 | $11,000 | +62% |
| UCLA | $37,000 | $70,000 | +89% |
Average tuition has risen more than 90% since around 2006. Whatever number you have in your head from your own college years is not the number your kids will face.
"I'll just get student loans, they're low interest, I don't have to pay them until after graduation." The worst version of that story is the person who takes on the debt and doesn't finish the degree.
What consistency does over eighteen years
Start when the child is born, invest $200 a month, average roughly 7% a year:
The money doubles. Save the same $43,200 in a regular savings account and you have $43,200. That gap is the whole argument.
As your income grows and you can contribute more, the effect scales. Around $108,000 contributed over the eighteen years lands somewhere near $200,000 — which is when an out-of-state school becomes a realistic conversation rather than a stressful one.
You don't need to start large. Consistency and time do the work. The 7% figure is a long-run illustration, not a guarantee, and fund fees come out of it.
It's not just four-year college
This is the misconception I hear most: "I'm not sure my kid will go to college — he'll probably get a scholarship." Fine. The money still works.
Qualified expenses cover a great deal more than a university degree:
- Trade schools — electrician, plumber, HVAC, welding
- Vocational programs — dental hygienist, cosmetology, medical and pharmacy technician, X-ray and ultrasound tech
- Culinary school, which in Las Vegas can take you a long way on the Strip
- Private K-12 tuition
That last one surprises people. Bishop Gorman here in Las Vegas costs more per year than tuition at UNLV. I have a friend whose child goes there and who uses 529 funds toward it.
One caveat: the annual amount you can withdraw for K-12 tuition is capped and is lower than for higher education. Check the current limit before planning around it.
What if they never use it?
This is the reason most parents underfund these accounts — the fear of locking money away for something that might not happen.
There's now a route out. Unused 529 funds can be rolled into a Roth IRA for the beneficiary. The money stays theirs, just pointed at retirement instead of tuition.
Consider $30,000 sitting unused when a child turns 18. Left to compound for four or five decades in a Roth, that can plausibly reach seven figures by the time they retire — at 7% over roughly fifty years it crosses $1 million.
It reframes the whole question. You're not betting on whether they go to college. You're saving money that stays useful either way.
The rollover does have conditions. There's a lifetime cap on how much can be moved, a minimum length of time the account must have been open, restrictions on recent contributions, and annual limits tied to normal Roth contribution rules. The beneficiary also needs earned income. Confirm the current requirements before relying on this as your plan — it's a genuine safety net, not a blank cheque.
It changes the conversation with your kid
When my son talks about where he wants to go, we look it up together — annual tuition, total cost, the real number.
Say you've saved $100,000. At UCLA's $70,000 a year, that's not quite a year and a half. At UNLV's $11,000, it covers the degree several times over.
That's not a lecture, it's arithmetic, and it opens up strategy instead of pressure:
- Start in-state, then transfer to a more prestigious school for the degree
- Community college for general education requirements, then university
- Pick the school the savings actually covers and graduate debt-free
Without a number, this conversation happens at the worst possible time — senior year, with acceptance letters on the table and no plan.
How to set one up
Straightforward. Most states run their own plan, but you're not limited to your home state — you can open a 529 through Fidelity, Vanguard or most major investment platforms. I use Vanguard, mostly because my IRA was already there.
Open the account, start contributing, and choose how it's invested. Automate the contribution so it isn't a monthly decision.
On target date funds
Most plans offer them, keyed to the year your child finishes high school. Early on they hold more aggressive investments; as the date approaches, the allocation shifts conservative.
That glide path exists for a good reason. You don't want a market drop the year before your child needs the money. The trade-off is management fees, so check what you're paying.
Worth noting this isn't a retirement account with thirty or forty years ahead of it. If you're starting late with five or six years to go, being conservative is appropriate rather than cautious.
Feed it with windfalls
Birthday money, Christmas, graduation gifts. Let them spend some and put the rest to work. My kids get Chinese New Year money every year — a good portion goes straight into the 529 to grow for them.
529 plan FAQ
What is a 529 plan?
An investment account designed for education expenses. Contributions are after-tax at the federal level, the money grows invested, and withdrawals for qualified education expenses are tax-free. Some states offer an income tax deduction or credit on contributions. The structure resembles a Roth IRA: after-tax money in, tax-free money out.
How much should I save for my child's college?
It depends on the schools you're realistically considering. UNLV runs about $11,000 a year in tuition while UCLA is around $70,000, so $100,000 saved covers a full degree in-state or roughly a year and a half out of state. Contributing $200 a month from birth grows to about $86,000 by graduation at 7% returns, from $43,200 contributed. Consistency matters more than starting large.
What can 529 money be used for besides college?
Considerably more than four-year degrees. Trade schools including electrical, plumbing, HVAC and welding programs qualify, as do vocational courses such as dental hygiene, cosmetology, and medical, X-ray, ultrasound or pharmacy technician training. Culinary school qualifies. So does private K-12 tuition, though the annual withdrawal limit for K-12 is lower than for higher education.
What happens to a 529 if my child doesn't go to college?
You have options. You can change the beneficiary to another child, a niece, nephew or grandchild. You can use it for trade school or vocational training instead. Or unused funds can be rolled into a Roth IRA for the beneficiary, where the money continues growing for retirement. The rollover carries conditions including a lifetime cap, a minimum account age, and annual limits tied to Roth contribution rules, so confirm current requirements.
How much can I contribute to a 529 each year?
Up to $19,000 per year per beneficiary without triggering gift tax reporting. That threshold is adjusted periodically, so confirm the current figure. Multiple people can contribute to the same beneficiary, so grandparents and other relatives can add to an account you've opened.
Where do I open a 529 plan?
Most states offer their own plan, but you aren't restricted to your home state. You can open one through major investment platforms including Fidelity and Vanguard. Once open, you choose how contributions are invested — many plans offer target date funds keyed to your child's expected graduation year, which shift from growth-oriented to conservative investments as that date approaches.
Talk through your investing goals
A 529 is one vehicle among several, and the right mix depends on your situation, your timeline and what you're building toward. If you want to sit down and talk through how real estate fits alongside your education and retirement savings, reach out.
This is general information, not individualized financial or tax advice. Contribution limits and rules change, so confirm specifics with your plan provider, financial advisor or CPA.