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• It’s never too early to start thinking about saving for college, and a 529 plan can help.
• However, I only pay a small amount into my daughter’s plan each month.
• A 529 plan can save you taxes, but its lack of flexibility makes it less valuable to me.

A college education comes with a high cost, so it’s never too early for families to start thinking about saving for these potential expenses.

My own daughter will be 3 this fall. She has had a 529 plan since she was 1. We contribute some money to her plan, but we also plan for other things for her future, academically and otherwise.

Here’s how I, as a financial planner, think about saving for college and what we do in my own family to plan.

529 plans are useful for a specific purpose

529 plans were created for a very specific purpose: as a college savings vehicle that rewarded savers with tax advantages.

Your contributions can grow tax-free in a 529 plan. Withdrawals from the accounts are also tax-free as long as the money is used for qualified education expenses.

The SECURE Act 2.0 also allows 529 account holders to perform Roth IRA rollovers. This is a fantastic benefit that can give families the opportunity to diversify the tax liability of accounts for a 529 plan beneficiary in the future.

529 plans sound like a great deal, and they are! I recommend virtually all of my financial planning clients to set up these plans for their children.

And yet, my wife and I only contribute about $400 a month to our daughter’s 529 plan, leaving us far short of our college funding goal…if that were the only way we planned for her future financially.

The big disadvantage of college savings plans

The feature that makes 529 plans great also includes their main limitation: you get tax benefits only if You use the money for qualified education expenses. If you take money out of a 529 plan and spend it on something else, you may incur taxes and penalties.

If flexibility and choice are your top financial priorities, you need tools in addition to a 529 plan that can help you grow your wealth for any purpose, not just educational goals.

Saving and investing for maximum flexibility

My wife and I Do save and invest more money for our daughter. We simply put most of what we can save into a joint taxable investment account in both of our names.

Based on our current overall savings rate, we could pay for college out of pocket by the time our daughter starts her freshman year without relying on her 529 plan.

Or we can fund any other goal we need to fund, depending on what actually happens in our lives over the next 15 years. The only constant in life is change, so flexibility and choice are incredibly important to us.

By investing heavily in our investment account, we are laying the foundation for our own livelihood (for the future, in retirement) and for our daughter (for whatever her individual goals may be 15 to 20 years out), regardless of whether or not she plans to attend a traditional college in the future.

It is important to enjoy life today

We want to maximize future financial flexibility for our entire family, which means prioritizing contributions to our taxable investment account over anything else—even if it means giving up some tax benefits.

It is also very important for our family to enjoy life together Today. Maintaining our savings rate is our top priority; spending on experiences that are important to us in the present comes second.

That means we choose to spend $500 on the ballet lessons our daughter is obsessed with instead of putting that $500 into her 529 plan. If there’s anything left over after our other expenses that we can put into a 529 plan, that’s great, but for us, that’s more of an icing on the cake than a requirement.

This is also the strategy I recommend to our wealth management clients: Yes, open and fund a 529 plan and take advantage of all its benefits. (This includes giving other family members, like grandparents, a designated place to contribute directly to a child’s education if that’s important to them.)

But also Save and invest aggressively in a taxable investment account so that you have the financial resources you need to fund your life, no matter what the future holds—and don’t miss out on very important experiences with your family today just to put a little extra into the college fund.