How I Think About College Savings for PE Families
The kids are back in school, which means tuition checks are going out. It's got me thinking about college savings, and the question I always start with: what are you actually trying to accomplish?
Not every family is solving for the same thing. Some want college fully funded. Some want optionality because they genuinely have no idea what their kids will end up doing. Some are mostly in it for the tax benefit. And some just want the money parked somewhere they can stop thinking about it. All four are fine. They just lead to different plans, so figure out which one you're in before you figure out how much to put in.
A few things I keep coming back to with PE families:
Close enough is good enough. You don't know where your kid will go or what it'll cost by then, so don't lose sleep trying to nail the number. Overfunding has its own cost, since money pulled out for anything other than education pays tax and a penalty on the gains. Leftover money isn't trapped, though. You can move it to a sibling, and some of it can eventually roll into your kid's Roth IRA. So get in the right range, capture the tax benefit, and adjust as the picture gets clearer.
Private versus public is a huge swing. The gap between the two can change the number you're solving for by a multiple. It's the single biggest driver of how much you need to save.
Will AI change whether they even need a degree? Nobody knows what a degree is worth in 2040. That uncertainty is an argument for optionality rather than paralysis, which brings me to my next point.
A 529 isn't the only bucket. If you'd rather your kids have money for something besides school, a custodial account or a trust can hold it. A custodial account is simple, but it becomes your kid's money outright once they reach adulthood, whether they're ready or not. A trust takes more to set up and gives up the tax free growth, but you decide how and when the money gets used. Or you can simply earmark part of your own taxable account, which keeps full control and full flexibility. Plenty of families end up with some combination.
Time does most of the work. The whole point of a 529 account is tax free growth, and growth needs runway. A dollar that goes in at birth has eighteen years to compound. The same dollar at age twelve gets six. As tuition gets closer, take a little less risk each year, so the money is there when the bills come due. Think of it less like a portfolio and more like a funding schedule.
Fund it when the cash shows up. Your comp is lumpy, so your 529 funding can be too. Bonus season and carry distributions are the natural moments, and a big distribution year is when superfunding makes sense: you can front load five years of annual gift exclusions per child in one shot, and double that as a couple.
The K through 12 rules have changed. The annual withdrawal limit for K through 12 doubled to $20,000 per child, and qualified expenses now go beyond tuition. If you're already writing private school checks, that changes the near term math. Two catches. First, 529s are run at the state level, and not every state has adopted the new federal limit. In some states those withdrawals are still nonqualified, which can mean state tax on the earnings and sometimes clawback of deductions you already took. Check your state's rules before you pull. Second, every dollar you use for K through 12 is a dollar that isn't compounding toward college. If you can, let the account build for a while before you start drawing on it.
Grandparents can do a lot here. A grandparent contributing to a 529 helps two generations at once: the grandchild gets a head start, and the parents get one less thing to worry about. They can also pay tuition directly to the school, which doesn't count against their annual exclusion or lifetime exemption, so it stacks on top of everything else.
Back to the question I started with. If you want college fully funded, pick a target and front load early. If you want optionality, split between a 529 and something more flexible. If it's mostly about the tax benefit, superfund in a big year and grab your state deduction. And if you just want to stop thinking about it, pick an age based portfolio and automate the contributions. Different goals, different plans.
A closing note. None of this should be taken at face value. Every point above has a layer underneath it that depends on your state, your cash flow, your gifting history, and what the rest of your balance sheet looks like. The right answer for one family is the wrong answer for the next. Work it through with an advisor and a CPA who understand your specific situation before you act.
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