Beyond 529s: Alternative Ways to Save for College

Financial advisers typically recommend “529” education-savings plans for college financing. These accounts allow for tax-deferred growth and tax-free withdrawals for qualified expenses such as tuition, fees, books, and equipment. Their lifetime contribution limits are generous, typically ranging from $235,000 to over $550,000 depending on the state, and recent rule changes have made 529 plans more flexible, with the ability to use finds for K–12 tuition or even roll them into a Roth IRA in some circumstances.

Not everyone is sold on the idea of a 529, however. Some families are hesitant to lock up money for a single purpose, especially if they’re unsure whether their child will pursue higher education, or if they want to preserve access to the funds for other needs.

If you’re among those who want more flexibility, there are several other vehicles worth considering. Here are some common alternatives, along with their advantages and trade-offs.

Taxable Brokerage Accounts

For savers who value flexibility, taxable brokerage accounts are often the go-to alternative. They have no contribution limits, no restrictions on how funds are used, and they allow full access to invested money at any time.

The downside? Unlike 529 plans, these accounts don’t offer tax-free growth or tax-free withdrawals, and for families concerned about financial aid, the ownership of the account matters. If a brokerage account is in the student’s name, it will be counted more heavily in federal aid calculations than if it’s held by a parent.

That said, with thoughtful, tax-efficient investing—such as using index funds with low turnover or harvesting tax losses—it’s possible to reduce the drag of taxes on long-term growth.

Roth IRAs

Roth IRAs are typically thought of as retirement tools, but under the right circumstances, they can also support college savings goals. Contributions to a Roth IRA (but not the investment earnings) can be withdrawn at any time, for any reason, without taxes or penalties. That makes it a flexible way to supplement education funding without locking up funds solely for college.

Additionally, Roth IRAs permit penalty-free early withdrawals of earnings for qualified higher education expenses. However, to withdraw earnings tax-free, the account must be at least five years old.

The biggest limitations are contribution and income caps. For 2025, individuals can contribute up to $7,000 annually (or $8,000 if over 50). Eligibility begins to phase out at $150,000 of income for single filers and $236,000 for married couples filing jointly. If you're starting late or earn too much, your ability to fund a Roth IRA may be limited.

It’s also important to avoid compromising your own retirement in the process. Tapping Roth funds for college should only happen if you have a clear plan to replenish or protect your retirement savings elsewhere.

UGMA and UTMA Accounts

Custodial accounts under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) offer another flexible option. These accounts can be used for any purpose that benefits the child, including education, and they have no contribution limits. Investment earnings are also subject to more favorable tax treatment thanks to the "kiddie tax" rules, which allow a portion of unearned income to be taxed at the child’s (often lower) rate.

However, there are a few caveats. Assets in UGMA/UTMA accounts are considered student-owned for financial aid purposes, which means they carry more weight in reducing aid eligibility. Another consideration is that once the child reaches the age of majority (18 or 21, depending on the state), they gain full control of the funds. That might not be ideal for every family, especially if the account has grown significantly or if the beneficiary isn’t ready to manage that money responsibly.

The Bottom Line: Start Early, No Matter the Tool

There’s no one-size-fits-all solution when it comes to saving for education. Some families will benefit from the tax advantages and structure of a 529 plan. Others may prefer the flexibility of a brokerage account, the dual-purpose potential of a Roth IRA, or the simplicity of a custodial account.

What matters most is not picking the perfect account; it’s getting started. The earlier you begin saving, the more time your money has to grow. Whether you’re a parent, grandparent, or someone else hoping to support a student’s future, time is the most powerful ally in college planning.

No matter which route you choose, the smartest move is simply to start as soon as you can.