No need to be spooked: How to guide clients through 529 planning

With Halloween approaching, one topic scarier to parents than haunted houses or spooky stories is the increasing cost of college. As an advisor, your clients may feel paralyzed by concerns about affordability, financial aid, or whether their child will even pursue higher education. By addressing these fears — and highlighting recent regulatory updates — you can confidently demonstrate that 529 plans are more versatile and effective than ever before.

What’s scaring your clients: They can’t afford to save for college

Not so scary: Every little bit helps

It’s easy for clients to feel daunted by the sticker price of tuition — public in-state four-year tuition averages over $11,000 annually, while private four-year institutions average more than $43,000.¹ But the message to reinforce is that progress matters more than perfection.

• Advisors can frame this as a cash flow management strategy: modest recurring contributions can be more effective than lump sums later. A contribution of $50 per month over 18 years could grow to more than $19,000 (assuming a 6% annual return).²
• Many states sweeten the deal with tax deductions or credits for 529 contributions, further lowering the net cost of saving.

Pro tip: Run side-by-side projections to show how small monthly contributions compare with borrowing later — often a compelling visual for reluctant savers.

What’s scaring your clients: A 529 plan will reduce financial aid

Not so scary: The impact is smaller than they think

This is one of the most persistent misconceptions. Under current FAFSA rules, assets in a parent-owned 529 plan are assessed at a maximum of 5.64%.³ That means $10,000 in a 529 plan reduces aid eligibility by only $564 — not a dealbreaker when compared with the benefits of reduced borrowing.

Looking ahead, advisors can highlight two important changes:

• Starting with the 2024–2025 FAFSA, grandparent-owned 529 distributions will no longer count as student income — eliminating a common penalty for well-meaning grandparents who wanted to help.
• With scholarships covering only a fraction of students (11% receiving significant awards), relying on aid is a risky plan.⁴

Pro tip: Position 529 savings as a way to control outcomes. Families can’t predict aid, but they can take control of their savings strategy with you as their guide.

What’s scaring your clients: What if their child doesn’t go to college?

Not so scary: Flexibility is expanding

Clients often hesitate because they see 529s as “too restrictive.” The reality is that 529 plans now have multiple exit ramps and broader applications:

• Expanded qualified expenses (2025 legislation): In addition to traditional higher education, families can use funds for tutoring, books, online resources, credentialing programs, and educational therapies. Beginning in 2026, the K–12 withdrawal cap doubles from $10,000 to $20,000 per student per year.⁵
• Roth IRA rollovers (SECURE Act 2.0): If a child doesn’t use all the funds, up to $35,000 can be rolled into their Roth IRA, provided the account has been open at least 15 years and rollovers respect annual contribution limits.⁶ This creates a “Plan B” that doubles as retirement savings for the beneficiary.
• Transferability: If one child doesn’t use the funds, accounts can be reassigned to a sibling, cousin, or even back to the parent for future education.

Pro tip: Reframe the 529 as a multi-use planning tool — not just “college savings.” Between expanded eligible expenses and Roth flexibility, the risk of “wasted money” is lower than ever.

Final thought

Don’t let misconceptions about 529 plans haunt your clients. With expanded qualified uses, upcoming FAFSA changes, and Roth IRA rollover options, these plans are more adaptable than ever. By addressing fears head-on, you can help clients feel confident in their decision to save — and strengthen your role as a trusted partner in their financial journey.