Planning and saving for a child or grandchild’s college education can feel like an overwhelming task, but it doesn’t have to be. With the right tools and early preparation, families are often surprised by how manageable the process can be. One of the most powerful education savings tools available is a 529 Savings Plan. Understanding what a 529 plan is, why it stands out among other savings options, what qualifies as a covered expense, and how to utilize leftover funds is essential to making the most of this valuable planning tool.

What is a 529 Savings Plan?

If your goal is to help fund a child or grandchild’s education expenses, a 529 Savings Plan can be one of the most effective tools available. These accounts are specifically designed for education expenses and come with meaningful tax advantages and flexibility. Before diving into the benefits, it is worth knowing that there are two common types of 529 plans that you can participate in: prepaid tuition plans and college savings plans.

Source: Napkin Finance

Prepaid tuition plans allow you to purchase tuition credits at today’s rates for future use at participating colleges, which can protect against rising education costs. However, coverage is typically limited to tuition and fees, excluding room, board, and books, and plans often require state residency. If you use a 529 prepaid tuition plan at an out-of-state or private school, you can still apply the funds, but the payout is usually based on a lower in-state average rather than the school’s actual tuition. As a result, the benefit is typically less valuable than using it at an in-state public institution.

On the other hand, college savings plans function more like investment accounts and offer significantly more flexibility. Rather than being tied to a specific institution or limited to tuition costs, these funds can be used on a wide range of qualified education expenses, including tuition, room and board, books, and supplies at any eligible institution.

At Cassaday & Company, we generally recommend college savings plans for most of our clients. Financial planning is a process, not an event – and as life changes, so do the plans families make for higher education. The added flexibility of a college savings plan means you are not locked into a single school or state, funds can be used for a broad range of education expenses, and the account can grow over time through a variety of available investment options.

What Are the Benefits of a 529 College Savings Plan?

Tax Benefits

• Earnings in a 529 account grow tax-free, and withdrawals for qualified expenses are not subject to federal income tax.
• Many states offer deductions on contributions made to the plan. For Virginia residents specifically, Invest529, the Virginia-sponsored 529 plan, account owners may deduct up to $4,000 per account per year, with an unlimited carryforward for future tax years, and those age 70 and older may deduct the entire amount contributed in a single year.

Flexibility

• Funds can be used for private, public, and trade schools, including international institutions and study-abroad programs.
• Beneficiaries can be changed easily without penalty.
• Plans are highly flexible across state lines, meaning you can open an account with any state regardless of where you live or where the beneficiary attends school.

What Can 529 Funds Pay For?

Understanding what does and does not qualify as an eligible expense is an important part of making the most of a 529 Savings Plan. The list of covered expenses is broader than many families expect and has expanded in recent years.

Qualified expenses include:

• Tuition and room & board
• Books, computers, equipment, etc.
• Off-campus housing costs, generally limited to the school’s published on-campus room and board allowance
• K-12 tuition up to $20,000 annually per student
• Registered apprenticeship programs, including fees, books, supplies, and required equipment
• Professional credentialing and certification programs

The following are not considered qualified expenses and should be budgeted for separately:

• Transportation and parking
• Health insurance
• Extracurricular activities

What Happens if There Are Leftover Funds in the 529 Account?

There are several ways families can use unused funds from a 529 account toward broader financial planning goals. They can:

• Transfer the funds to another qualifying family member for any level of education
• Save the funds for future educational needs, such as a graduate or professional program
• Use the funds to pay up to $10,000 in qualified student loan repayments per beneficiary

The SECURE 2.0 Act introduced a valuable new benefit for families with unused 529 funds. As of January 1, 2024, unused 529 funds can be rolled over to a Roth IRA for the beneficiary tax-free and penalty-free, up to a lifetime limit of $35,000. To use this benefit, there are a few limitations to keep in mind:

• The 529 account must have been open for at least 15 years
• The rollover amount must have been in the 529 account for at least 5 years
• The funds must be rolled over to a Roth IRA owned by the 529 account beneficiary
• The beneficiary must have “earned income” (wages or self-employment income) in the year of the rollover that is equal to or greater than the amount being moved.

As with any tax-related decision, we recommend speaking with your advisory team to ensure a rollover aligns with your overall financial plan and that you meet the requirements under the SECURE 2.0 529 rules before initiating the transfer.

Understanding The Real Cost of College

One of the most common mistakes families make when planning for college is focusing only on a school’s advertised tuition. The actual “sticker price,” formally known as the Cost of Attendance (COA), is a more complete figure that includes tuition and fees, room and board, books and supplies, transportation, and personal expenses.

Source: Next-Gen Personal Finance

For example, according to the State Council of Higher Education in Virginia, the average tuition and fees for in-state students at four-year public institutions were $14,846 in the 2025-2026 academic year. However, the total Cost of Attendance, factoring in room and board, books and supplies, transportation, and personal expenses, averaged $29,538 – nearly double the advertised price. Understanding that gap is an important part of setting realistic expectations and building a savings strategy that accounts for the full financial picture.

The encouraging news is that families rarely pay the full Cost of Attendance. Only about 38% of undergraduate students pay the sticker price in full — the rest benefit from some combination of financial aid, grants, and scholarships. Having a 529 savings plan in place early is one of the most effective steps a family can take to approach paying college costs with confidence.

Getting Started

Education planning is an important piece of your holistic financial picture, and a 529 savings plan is one of the most effective tools available to families at any stage of the process. It is never too late to open and fund an account, whether you are saving for a child, grandchild, or another loved one in your life.

Cassaday & Company has developed a few additional resources that clients have found helpful when it comes to education planning:

• Financing Higher Education: From Birth Through College
• Should 529 Plans Be Owned By Parents or Grandparents?
• Getting Smart About Paying For College: A Step-By-Step Guide

Every family’s situation is different, and the right plan depends on your goals and broader financial picture. If you have questions about whether a 529 plan makes sense for your family, or how to incorporate one into a broader college funding strategy, we encourage you to reach out to your advisory team. We are always happy to talk through your options and help identify strategies that make sense for your specific situation.

If you are not yet a Cassaday & Company client, we are happy to offer a complimentary, no-pressure evaluation of your current financial plan and goals. Please contact us at info@cassaday.com or (703) 506-8200.

By: Ryan Muscatella, CFP®, APMA®, BFA™ 

The material presented above is solely for information purposes and has been gathered from sources believed to be reliable. However, Cassaday & Company cannot guarantee the accuracy or completeness of such information, and certain information may have been condensed or summarized from its original source. This information is not intended to be a substitute for specific individualized tax or legal advice. Neither Cassaday & Company, nor its registered representatives, offer tax or legal advice. As with all matters of a tax or legal nature, you should consult with your tax or legal counsel for advice.