The 529 Plan is among my favorite tax-advantaged accounts in America, right up there next to the IRA, HSA, and Solo 401k.

It's one of those accounts almost everyone has heard of, and many high earners with kids have one. But what they don't know is how far you can go to maximize the value.

The typical approach is to open an account when your child is born, set up a recurring contribution, and never think about it again until college rolls around.

That's a reasonable start. But the 529 can do a whole lot more than quietly accumulate money for a tuition bill, and most of the best strategies with the account are ones your financial advisor has probably never mentioned.

Let's dig in.

There are roughly 17 million open 529 accounts in the United States. And the majority of them are barely scratching the surface of what the account can do.

A 529 Plan is a state-sponsored, tax-advantaged savings account primarily designed for education expenses. You contribute after-tax dollars, and the money grows completely tax-free inside the account.

When you withdraw it for qualified expenses (things like school tuition, books, supplies, etc.), you owe zero federal taxes on any of it!

There's no annual federal contribution limit and no income limit either, which is pretty sweet.

So, anyone can open one, anyone can contribute, and you can open one in any state.

That last point matters more than you might realize, and we'll get into why in a moment…

This is where a lot of high earners leave real money on the table without realizing it.

About 34 states offer a state income tax deduction or credit for 529 contributions. Depending on your state tax rate and how much you contribute, this can translate into hundreds to thousands of dollars of savings every single year. It's one of the few above-the-line benefits that high earners can actually access without any income phase-outs.

A few things worth noting:

The move here is pretty straightforward: if your state offers a deduction, contribute at least enough to maximize it (it’s basically free money).

Then evaluate whether your state's plan has competitive investment options and low fees. If it doesn't (and your state doesn't penalize you for going elsewhere), there's usually no reason to stay.

Nevada, Utah, and New York's plans are generally well-regarded for their investment options and low costs. But it's worth comparing before you commit.

This is the strategy most people with a 529 have never heard of, and it's arguably one of the most powerful single moves in the tax code.

Normally, contributions to a 529 are governed by the annual gift tax exclusion, which is $19,000 per person in 2026. For a married couple, that's $38,000 per child per year before gift tax rules kick in, which is already generous.

But the IRS has a special carve-out for 529 plans called the 5-year election (aka superfunding). It lets you front-load five full years of contributions into a 529 in a single year, as long as you elect to spread it across five years of tax returns for gift tax purposes.

Here's what that looks like in practice:

If you elect to superfund, keep in mind that you can't make additional annual gifts to the same child during those five years without eating into the lifetime exemption ($15 million as of 2026).

The power of this move is both the tax benefit and the investment compounding.

For example, a $190,000 lump sum invested at a child’s birth has 18 years to grow tax-free. At a 10% annual return (which is roughly what the S&P 500 has returned over the last century), that's over a million dollars by the time they're ready for college!

This is the biggest misconception about the account, and it's worth busting clearly.

When most people think about 529s, they think it means four-year college tuition.

Well, the actual list of qualified expenses is much, much broader:

The bottom line is the account is far more flexible than the associated “college savings plan” name suggests.

This is the objection I hear most from people who haven't opened a 529 yet. And the answer is almost always better than people expect.

Option 1: Change the beneficiary.

You can transfer the account to another qualifying family member with no taxes and no penalty. The IRS defines family member broadly: siblings, cousins, nieces, nephews, stepchildren, and even yourself all qualify. If one child gets a full scholarship and another is heading to grad school, this is a pretty neat solution.

Option 2: Let it sit.

There's no deadline to use the money or required distributions. Some families hold 529 accounts for decades and pass them down across generations.

Option 3: Use it for yourself.

Want to go back to school? Take a professional certification program? The beneficiary doesn't have to be your child. You can be the beneficiary of your own 529.

Option 4: Take the non-qualified withdrawal.

You can pull the money out for any reason. You'll owe income taxes on the earnings plus a 10% penalty on those earnings. That's not ideal, but it's also not a disaster — you end up roughly where you'd have been had you invested the money in a taxable brokerage account.

And then there's Option 5, which deserves its own section entirely.

This is the rule change that completely reframed how I think about 529s.

Under SECURE Act 2.0, starting in 2024, you can roll unused 529 funds into a Roth IRA for the same beneficiary completely tax-free and penalty-free.

The rules:

What this means in practice: if you open a 529 for a child today and they end up not needing it for education, that child still gets a $35,000 head start on their Roth IRA. And if that account has been compounding for 15+ years before the rollover, the dollars going in have already grown considerably.

I've written at length about how a Roth IRA compounds into life-changing tax-free wealth over time. This rollover is one of the cleanest on-ramps to that outcome for the next generation.

There's one important timing implication here: the 15-year clock starts when you open the account, not when you start contributing meaningfully. Which means the right time to open a 529 for a child, even if you only put $100 in it, is as soon as possible. The clock is already ticking.

Most 529 plans default to an age-based portfolio that automatically shifts more conservative as the child approaches college age. That's not necessarily wrong, but most parents don't realize what conservative means in practice, or how early the glide path starts.

If your child is under 10, there's a strong case for keeping the entire balance in a stock index fund. The money has a 10+ year horizon, and the biggest risk at that stage isn't short-term volatility. It's underperforming inflation with a portfolio that's already loaded with bonds.

The default age-based allocation is designed for the median family, which may not have the ability to top up the account if markets drop close to college. High earners often have more flexibility: you can pay tuition out of pocket if the account is temporarily down and let the 529 recover. That optionality is worth something.

It’s worth checking the investment options in your state's 529 plan because they are not all created equal. Some plans offer excellent low-cost index funds. Others have high expense ratios and limited options. If your state doesn't offer a tax deduction, and the plan's investment options are mediocre, you have every reason to use a better plan in another state instead.

This is the angle almost no one considers when they open a 529, and it's particularly powerful for high net worth families.

Contributions to a 529 are treated as completed gifts, which means they leave your taxable estate immediately. For anyone thinking about estate planning, this makes the 529 a useful tool for transferring wealth to the next generation efficiently.

The superfunding election makes this even more powerful. A couple can remove $190,000 per grandchild from their estate in a single year, and the money continues to compound tax-free for decades on behalf of the next generation.

What makes this structure unusually attractive compared to most estate planning tools is the control you retain. You can change the beneficiary, adjust investments, and even pull the money out if circumstances change (subject to taxes and penalty on earnings). Most irrevocable trust arrangements don't give you anything close to that flexibility.

If you've been meaning to explore estate planning and haven't started yet, the gift tax exclusion is a useful place to understand the mechanics before diving into more complex structures.

Here's how I'd think about putting this all together:

The 529 is not a set-it-and-forget-it account. It's one of the most flexible tax-advantaged structures available, and most people are using about 20% of what it can do.

This is the kind of account where a small amount of intentional planning compounds into a very large outcome over time.

Open the account early, superfund it if you can, invest with your time the horizon in mind, and know that the rules give you far more flexibility than most people realize.

Reply and let me know: do you have a 529 already, or has something been holding you back from opening one?

See you next week!

— Ankur

This post is for informational and educational purposes only and solely reflects the personal views of the author. It is not investment, legal, tax, or professional advice. Laws and regulations discussed are subject to change and may not apply to your individual circumstances.