Planning for College: How It Fits Into Your Estate Plan

Editor’s Note: This article has been reviewed and revised as of August 2025 for accuracy and clarity.

Helping a child or grandchild pay for higher education is a profound gift and a source of great satisfaction for many families. However, the method you choose to save and pay for college can have significant financial and tax implications. It’s not just a savings strategy; it’s an important part of your overall financial and estate plan.

Let’s review some of the most common options and their key features.

529 Plans

A 529 plan is a tax-advantaged savings plan designed specifically for education expenses. While they offer great benefits, it’s important to understand the full picture.

  • Pros: Funds in a 529 plan grow tax-free and can be withdrawn tax-free when used for qualified education expenses. A recent, major improvement is that unused funds (up to a lifetime maximum of $35,000) can now be rolled over into a Roth IRA for the beneficiary, providing a fantastic head start on their retirement savings.
  • Cons: If the plan is owned by the student or a parent, it is considered an asset when applying for federal student aid. Additionally, if the funds are withdrawn for non-educational purposes, the earnings are subject to income tax and a 10% penalty.

Using a Roth IRA

While primarily a retirement tool, a Roth IRA can be an unconventional but effective way to save for college.

  • Pros: You maintain complete control over the assets. The money in your Roth IRA is not counted when determining eligibility for need-based financial aid. You can withdraw your original contributions at any time, for any reason, tax-free and penalty-free.
  • Cons: The annual contribution limits are much lower than a 529 plan. For 2025, the limit is $7,000 (or $8,000 if you are age 50 or older). There are also income limitations on who can contribute directly to a Roth IRA.

Investing in a Standard Brokerage Account

This is the most straightforward approach: simply investing in growth-oriented funds or equities in your own name.

  • Pros: This method offers maximum flexibility and control. The funds are not counted for financial aid purposes, and you can use the money for anything, not just education.
  • Cons: Unlike a 529 plan or Roth IRA, the growth is not tax-free. When you sell the investments to pay for tuition, you will have to pay capital gains taxes on any appreciation.

Integrating College Savings into Your Overall Plan

Deciding how to pay for higher education is a balancing act between providing for your children or grandchildren and ensuring your own retirement is secure. These decisions are a key part of a holistic estate plan.

If you would like to discuss how these strategies fit into your long-term goals, our attorneys can help. Call our office at (919) 256-7000 to schedule a consultation.