04/13/2026
Saving for Education: Understanding Your Options in 2026
Planning for education is about more than simply setting money aside. It is about choosing the right savings vehicle, understanding the tax tradeoffs, and making sure your education strategy fits within your broader financial life.
For many families, the biggest question is not whether education costs will be significant. It is how to prepare without compromising retirement, flexibility, or future cash flow.
At Satovsky Asset Management, we believe education planning should be thoughtful, tax-aware, and fully aligned with your long-term goals. A strong strategy can help you save with purpose while preserving optionality as your child’s path becomes clearer.
Why education planning still matters
The cost of education remains a major financial burden for many families, and delaying the conversation can make the challenge significantly harder. Starting early gives savings more time to grow, allows for a wider range of planning choices, and can reduce the pressure to make large contributions later.
That said, education planning should not come at the expense of your own financial security. One of the most important principles we discuss with clients is simple: your child may be able to borrow for school, but you cannot borrow for retirement. Education funding works best when it is part of a coordinated financial plan, not a competing priority.
529 plans: still the leading option for many families
For many parents and grandparents, a 529 plan remains one of the most effective ways to save for education. A 529 is a state-sponsored education savings plan that allows after-tax contributions to grow tax-deferred, with tax-free withdrawals when used for qualified education expenses. Qualified expenses generally include tuition, fees, books, supplies, computers, and in many cases room and board for eligible students. Federal law also allows up to $20,000 per year for K–12 tuition and up to $10,000 lifetime per beneficiary for qualified student loan repayment. As of 2025, qualified K–12 expenses extend beyond tuition to include curriculum materials, tutoring, standardized test fees, dual enrollment, educational therapies for students with disabilities, and online educational platforms. It is worth noting that not all states have conformed to the expanded federal rules, so families should confirm their state’s treatment of K–12 withdrawals before taking distributions
A 529 plan can be attractive because it offers:
tax-free growth for qualified education use
possible state tax deductions or credits, depending on the state
flexibility to change beneficiaries to another qualifying family member
high aggregate contribution limits set by each state
the ability to front-load up to five years of annual exclusion gifts for gift-tax purposes, a strategy sometimes called superfunding
For 2026, the federal annual gift tax exclusion is $19,000 per donor, per beneficiary, which means a married couple may contribute $38,000 per year per beneficiary without using lifetime exemption or triggering gift tax. Utilizing a front-loading or superfunding strategy means a donor may contribute up to $95,000 per beneficiary or for a married couple $190,000 in a single year.
New flexibility: 529-to-Roth IRA rollovers
One of the most meaningful updates since this article was first published is the addition of limited 529-to-Roth IRA rollovers. Under current rules, certain long-funded 529 assets may be rolled into a Roth IRA for the beneficiary, subject to eligibility requirements, annual IRA contribution limits, and a lifetime rollover cap of $35,000.
This provision does not eliminate the need for careful planning, but it does offer a meaningful safety valve for families concerned about overfunding. Rather than facing a penalty on unused balances, leftover 529 funds now have a potential path into retirement savings for the beneficiary.
Expanded use: career credentialing and professional licensing
Another recent change has broadened the definition of qualified education expenses beyond traditional degree programs. 529 funds can now be used for recognized postsecondary credential programs, including trade and vocational training, professional licensing exams, and continuing education required to obtain or maintain a credential.
This expansion reflects a growing recognition that education and career preparation take many forms. For families with a beneficiary pursuing a nontraditional path, or for adults looking to reskill or earn a professional credential, 529 plans are now a more versatile tool than they have been in the past.
UTMA and UGMA accounts: more flexibility, less control
A UTMA or UGMA custodial account can also be used to save for a child’s future. These accounts are often appealing because they offer broad investment flexibility and can be used for expenses beyond education. Unlike a 529 plan, the money is not limited to qualified education expenses.
However, that flexibility comes with tradeoffs.
A custodial account is considered the child’s asset, the gift is generally irrevocable, and control transfers to the child when they reach the age of majority under state law. These accounts also lack the same tax advantages as a 529, and investment income may be subject to the kiddie tax rules. For families concerned about control, tax efficiency, or financial aid positioning, those drawbacks can be significant.
Financial aid rules have changed
Another important update involves financial aid treatment.
Historically, grandparent-owned 529 plans created concern because distributions could negatively affect aid calculations. Under the simplified FAFSA now in use, distributions from grandparent-owned 529 plans are no longer reported as student income on the FAFSA, which has made these accounts more attractive for multigenerational education planning. Parent-owned 529 plans also continue to receive more favorable treatment than student-owned custodial assets in the federal aid formula.
This change has improved flexibility for grandparents who want to help fund education without unintentionally reducing aid eligibility.
How much should you save?
There is no one-size-fits-all answer.
The right savings target depends on your child’s age, the type of school you may want to fund, your current cash flow, your retirement readiness, and how much of the total cost you realistically want to cover. Many families assume they must fully fund four years of college. In practice, that is not always necessary or even desirable.
A more practical approach is often to set a thoughtful target, revisit it regularly, and build flexibility into the plan. Some families choose to aim for a percentage of projected costs rather than the full amount. Others use a mix of 529 assets, taxable savings, current income, and future assistance from grandparents.
The key is not perfection. It is coordination.
Choosing the right approach
For many families, the best education strategy starts with a few core questions:
Are you already saving adequately for retirement?
Is tax efficiency a top priority?
Do you want the funds used strictly for education, or more broadly?
Are grandparents part of the planning conversation?
How important is flexibility if your child’s path changes?
If your goal is education-specific savings with meaningful tax advantages, a 529 plan is often the strongest starting point. If your goal is broader flexibility and you are comfortable with the tradeoffs around ownership and control, a custodial account may play a role. In some cases, a coordinated combination of both can make sense.
The Satovsky perspective
Education planning should not happen in a vacuum. It should be integrated with your tax strategy, retirement planning, estate planning, and long-term family goals.
That is where thoughtful advice matters.
At Satovsky Asset Management, we help families evaluate education funding options in the context of the full financial picture. Whether you are saving for young children, preparing for college in the near term, or coordinating support from multiple generations, we can help you build a strategy that is practical, flexible, and aligned with what matters most.
Saving for education is not just about paying a future bill. It is about making intentional decisions today that support both your family’s opportunities and your own financial security.
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