Questions around 529 plans have shifted recently. It is no longer just about how much college will cost. More parents are asking whether traditional education will look the same at all as AI reshapes careers, universities, and the skills that actually matter.
I am also hearing a related concern more often. It is not just college anymore. Parents are wondering whether they will need to support kids financially for longer after school, whether that is through additional training, career pivots, or delayed independence.
That uncertainty does not mean 529 plans are obsolete. It does mean they should be used thoughtfully.
What a 529 Really Does Well
The advantage of a 529 plan is often described as tax free growth for education expenses. That is true, but it is easy to overstate how powerful that benefit actually is.
Unlike retirement savings, education savings have a short timeline. With retirement, you may invest for decades and then spend the money gradually over many more decades. That long runway allows compound growth to do a lot of work.
A 529 does not function the same way. You may save for 18 years, but by the time a child is in high school, most of that account should be de risked. You cannot afford a market downturn when tuition bills are due. That means much of the portfolio shifts into bonds during the final years, which significantly reduces growth.
Because of that, a 529 should not be viewed as the only or even the primary place where education related flexibility lives.
Avoid Overfunding Based on a Perfect Plan
One common mistake is building a 529 around an idealized future. Four years of private university. Possibly graduate school. Rising tuition forever.
Even if that is the plan today, I would not fund a 529 to that level. Instead, I prefer anchoring the 529 to a public university baseline. Roughly $25,000 to $30,000 per year in today’s dollars.
That approach keeps the account meaningful without creating rigidity. If education paths change, or if your child does not follow the original plan, you are not stuck with an oversized 529 that becomes a tax and penalty problem.
If you end up with $150,000 to $200,000 in a 529 instead of $500,000 or more, you retain far more flexibility.
What Happens If You Overfund?
Overfunding a 529 is not catastrophic, but it is inconvenient.
If money comes out for non qualified expenses, taxes and penalties apply only to the gains, not your original contributions. For example, if you contributed $150,000 and the account grew to $200,000, only the $50,000 of growth is subject to tax and penalty.
Recent rule changes have also helped. Under current law, up to $35,000 can eventually be rolled from a 529 into a Roth IRA for the beneficiary, subject to annual limits. That alone provides a meaningful buffer against modest overfunding.
There is also flexibility in how broadly education is defined. Qualified expenses already extend beyond traditional four year universities and include certain trade programs and alternative education paths. If AI meaningfully changes how education works, it would not be surprising to see further expansion here over time.
Pair the 529 With Taxable Savings
Rather than trying to solve every future unknown inside a 529, I prefer a blended approach.
Fund the 529 to a reasonable level, then build additional flexibility in a taxable brokerage account. That account does not need to be earmarked formally for education. It can simply be part of your overall savings, with the understanding that it may supplement education costs if needed.
This structure allows you to use the 529 aggressively during college, ideally drawing it down by junior year. Paying a final year from taxable savings often simplifies things and preserves optionality.
If education costs are lower than expected, that taxable account remains fully flexible for anything else life brings.
Planning for Flexibility, Not Precision
The goal with education funding today is not precision. It is adaptability.
A well sized 529 paired with general savings gives you multiple paths forward, whether education looks traditional, alternative, extended, or something entirely new. You are not betting everything on one outcome, and you are not forcing future decisions to fit a plan made decades earlier.
That balance matters more than ever.
This post is adapted from a recent episode of the Scholar Wealth Podcast. For more perspective on education planning, 529 strategies, and building flexibility into long term family planning, listen to the full podcast episode here.