Frequently Asked Questions

The amount depends on your child's age, target types of schools and locations, and how much of the cost you want to save for.

For example, if the rate of return on the college savings is estimated to be 6% per year, then saving $230 per month for 15 years at that rate of return results in total savings of about $65,000. Four-year public university costs in California average around $110,000, as of 2024. But costs are likely to increase in the future. If those costs increase at 4% per year, the cost in 15 years will be about $198,000. Given these assumptions, this saving plan would cover about one-third of those future costs.

The key variables are: your child's current age (the earlier you start, the less you need to save monthly), your target coverage (many families aim to cover one-third to one-half of projected costs), target location and type of school, current education costs, expected increases in costs, and expected investment growth.

Instead of guessing, we recommend building a personalized plan based on your specific situation.

The best time to start is as soon as possible. You can even start before a child is born. For example, the power of compound growth means that starting when your child is a newborn versus waiting until they're 10 can reduce your required monthly savings by 50% or more.

But, remember, it's never too late to start. Even if your child is in middle school or high school, having a clear plan helps you make the most of the time you have. Many families underestimate the financial aid and scholarships their student may receive, so starting late doesn't mean you're out of options.

The most important step is getting a clear picture of your specific situation and building a realistic plan.

According to the Education Data Initiative, as of 2025, the average total cost for students living on-campus (tuition, fees, room, and board) is estimated to be:

• Public four-year (in-state): ~$27,000/year
• Public four-year (out-of-state): ~$46,000/year
• Private nonprofit four-year: ~$57,000/year

However, "sticker price" isn't what most families pay. Financial aid, merit scholarships, and grants can significantly reduce the actual cost. Many scholarships and grants do not take financial need into account. The key is understanding what your family's likely "net price" will be at your target schools.

College costs have historically increased 2-4% annually, so projecting future costs is an important part of any education savings plan. To get a quick, back-of-the-envelope estimate, you can multiply today's costs by two (this approximates a 4% annual increase over 18 years). Centoic's planning approach helps you model different scenarios and use available data to make educated estimates, so you can select saving targets that make sense for your unique situation.

A 529 plan is a tax-advantaged savings account specifically designed for education expenses. The key benefits include:

• Tax-free growth: Your investments grow without being taxed along the way
• Tax-free withdrawals: When used for qualified education expenses (things like tuition, fees, books, room and board), you pay no federal tax on withdrawals
• State tax benefits: Many states offer tax deductions or credits for contributions
• Flexibility: Funds can be used at any accredited institution nationwide, and you can change the account's beneficiary to another family member if needed

Each state sponsors at least one 529 plan, but you're not limited to your home state's plan. The right plan for you depends on your state's tax benefits, investment options, and fees.

Note: 529 accounts have tax implications. You should consult a tax professional for questions about your specific tax situation.

A 529 plan has a minimal impact on financial aid eligibility. The benefits of saving typically outweigh the impact.

Here's how it works:

When owned by a parent or dependent student, 529 assets are currently counted as parental assets on the FAFSA at a maximum rate of 5.64%. Assuming this rate is in place, a $50,000 529 balance would reduce aid eligibility by at most $2,820. The tax free earnings over time are likely to exceed that reduction in aid.

For example, if $175 per month was deposited in the 529 account over 15 years at a 6% rate of return, the resulting end balance of about $50,000 would include about $18,000 of investment gains that could be used tax-free for eligible education expenses.

Important recent changes: Starting with the 2024-25 FAFSA, distributions from grandparent-owned 529 plans no longer count as student income. This makes grandparent contributions more attractive than before.

The bigger picture: Financial aid calculations are primarily driven by income, not assets. And every dollar you save is a dollar you won't need to borrow at higher interest rates later.

You have several options to make use of the funds in a 529 account:

• Change the beneficiary to another family member (sibling, cousin, niece/nephew, or even yourself for your own qualified expenses for continuing education)
• Use it for other qualified education expenses such as K-12 tuition (up to $10,000/year), apprenticeship programs, or student loan repayment (up to $10,000 lifetime per beneficiary)
• Roll over to a Roth IRA up to a $35,000 lifetime limit, and subject to certain requirements under the SECURE 2.0 Act
• Withdraw up to the amount of the scholarship penalty-free, if the beneficiary gets a scholarship (you'll only pay ordinary income tax on the earnings portion, not the 10% penalty)
• Keep it for graduate school or future educational needs

The 529 is more flexible than many people realize, which is one reason many families use it to save for education.

Yes, thanks to the SECURE 2.0 Act passed in 2022. Starting in 2024, you can transfer unused 529 funds to a Roth IRA for the beneficiary, subject to these requirements:

• The 529 account must have been open for at least 15 years
• The amount that can be transferred each year is limited to the annual Roth IRA contribution limit ($7,000 in 2025)
• Only contributions that have been in the account for at least 5 years are eligible
• There's a $35,000 lifetime maximum per beneficiary
• The Roth IRA must be owned by the 529 beneficiary (not the parent)
• The beneficiary needs earned income at least equal to the rollover amount

This provides a valuable alternative in case families oversave or don't use all their education funds. However, the limitations mean it works better as something that can be done "just in case" than as part of a saving plan.

There are tax implications for rollovers. You should consult a tax professional about how this option might apply to your tax situation.

Yes, they can, and recent changes to 529 account rules have made it easier and more flexible. Grandparents can:

• Open their own 529 account with a grandchild as the beneficiary
• Contribute to an existing parent-owned account
• Use "superfunding" to contribute up to 5 years of gifts at once ($90,000 in 2024) without gift tax consequences

The big news for financial aid: Starting with the 2024-25 FAFSA, grandparent-owned 529 accounts and their distributions are no longer counted as student income. Previously, withdrawals from grandparent-owned plans could reduce a student's financial aid by up to 50% of the distribution amount. This change removed that obstacle to grandparent contributions.

For gift tax considerations it is important to consult a tax professional to understand how 529 contributions might affect your personal tax situation.

No, you can invest in any state's 529 plan regardless of where you live. However, your home state's plan may offer tax benefits worth considering:

Reasons to consider your home state's plan:

• State tax deduction or credit for contributions
• Potential matching grants or scholarship programs
• State-specific creditor protections

Reasons to consider an out-of-state plan, if these apply to your situation:

• Lower fees and expense ratios
• Better investment options
• Superior plan management

If your state offers a tax deduction, estimate the actual dollar value it will provide you and compare that to any fee savings from alternative plans. This can help with your decision. Some states (like California) offer no state tax benefit for 529 contributions, making the decision simpler. In that case choose the plan with the best combination of low fees and good investment options that fit your investment risk tolerance.

The decision involves weighing several factors:

Reasons to consider your home state's plan:

• State tax deduction or credit for contributions (you need to check your state's specific benefits, if any)
• Potential state-specific benefits like matching grants or scholarship programs
• Protection from creditors (varies by state)

Reasons to consider another state's plan:

• Lower fees and expense ratios
• Better investment options
• Superior plan management and customer service

One way to think about it:

If your state offers a tax deduction, calculate the actual dollar value and compare it to any fee savings from alternative plans. For example, a state tax deduction worth $300/year might outweigh a 0.2% fee difference on a smaller account, but not on a larger one.

Some states (like California) offer no state tax benefit, which simplifies the decision. In that case you can choose the plan with the best combination of low fees and investment options that work for your own goals and risk tolerance.

529 plan is specifically designed for saving for education. It is likely to provide more benefits for a family that prioritizes education savings. Here's why:

When a 529 makes sense: You're primarily saving for education and want to minimize taxes and financial aid impact.

When UTMA/UGMA might work: You want flexibility for the child to use funds for non-education purposes (first car, home down payment) and are comfortable with them taking control at adulthood.

You can also use both: a 529 for education-specific savings and a UTMA for general purposes.

Your bank or brokerage offers a 529 account. An advisor provides something different: personalized guidance on how to plan and use that account for saving.

What a bank's 529 plan typically provides:

• An account to hold your education savings
• Investment options to choose from
• Basic information about the plan

What your bank's 529 doesn't provide (unless you've engaged them as an advisor):

• How much you actually need to save based on your goals
• Which investment options are right for your timeline
• When and how to adjust as circumstances change
• How to optimize for financial aid
• Coordination across multiple children or accounts

What fee-only advisors may provide, through an advisor or an app:

• Personalized savings targets based on your family's situation (advisor or app)
• Specific investment recommendations for your risk tolerance and timeline (advisor or app)
• Ongoing guidance as markets, costs, and your circumstances change (app)
• A plan that works with any 529 or brokerage you choose (advisor or app)

Think about it this way: Your bank provides the vehicle. An advisor can provide the map, the route, and navigation along the way.

A 529 plan offers many features that were specifically designed for education saving. Here's a comparison:

529 Plan advantages for education:

• Tax-free growth AND tax-free withdrawals for qualified education expenses
• No income limits on contributions
• Higher contribution limits (varies by state, often $300,000+)
• Minimal impact on financial aid (5.64% of parental assets)
• Purpose-built for education expenses

Roth IRA considerations:

• Tax-free growth, but withdrawls for education expenses are taxed as income
• Withdrawals of contributions are always tax/penalty-free
• Income limits on contributions
• Lower contribution limits ($7,000/year in 2025)
• Competes with your retirement savings

When a Roth IRA might supplement a 529:

• You've maxed out 529 contributions
• You want more flexibility in case education funds aren't needed
• You're uncertain about future education plans

For dedicated education savings, 529s offer more tax advantages. But a Roth IRA can serve as a backup, since you can access contributions penalty-free for any purpose.

College costs have historically increased faster than inflation, although cost increases have actually slowed down in recent years. Current trends show:

• Recent annual increases: 2-4% per year at most institutions
• Historical average: Around 5-6% annually over the past several decades
• Public vs. private: Public institutions have seen larger percentage increases, so the difference in cost between public and private is not as big as it once was

For planning purposes, a 4-5% annual increase in costs is often assumed. However, it's important to build flexibility into your plan since actual increases vary by the type of school, region, and other factors.

This is why saving for education is an ongoing process. Costs don't increase at a predictable rate, so saving plans should ideally adapt as new information becomes available.

Just like buying a car or a house, the advertised price for tuition often isn't what you actually pay. It's important to understand what we call the "expected cost" by looking at historical cost data for different kinds of schools.

Sticker price (also called "published price" or "cost of attendance"):

• The official price a school publishes on their website and promotional materials
• Includes tuition, fees, room, and board
• This is usually the number you see in headlines and news about college costs

Net price (what many families actually pay):

• Sticker price minus grants, scholarships, and other aid that doesn't need to be repaid (often simply a school offering a lower price to be competitive with other schools)
• Varies significantly based on family income, assets, and student merit (not always based on financial need)
• Can be 40-60% lower than sticker price at many schools

For example, a school with a $60,000 sticker price might have a net price of $25,000-35,000 for a middle-income family after financial aid. Even without financial aid, the net price could be $40,000-$50,000, due to merit scholarships, depending on the type of school and the student's profile.

One of the main challenges in building a saving plan is predicting the expected cost of education. It requires understanding how different kinds of schools calculate aid, how merit scholarships vary, and how a student's financial situation affects eligibility. This is where personalized planning can offer more information than published averages.

It depends (you knew we were going to say that...) on your specific situation. Here are some of the major factors to consider:

Prioritize debt payoff when:

• You have high-interest debt (credit cards, personal loans above 8-10%)
• The interest rate you're paying exceeds your expected rate of return from investments you'd be comfortable with
• Debt payments create mental stress or in some way strain your monthly budget

Consider saving alongside debt when:

• Your debt is lower-interest (certain mortgages or subsidized loans)
• You have years before college and can benefit from compound growth
• Your employer or state offers matching or tax benefits for 529 contributions

A balanced approach can work well for some people:

• Pay minimums on low-interest debt
• Contribute enough to capture any available tax benefits
• Attack high-interest debt aggressively
• Increase education savings as debt decreases

There's no one-size-fits-all answer. An advisor can help families evaluate these trade-offs based on their specific numbers and priorities.

"Oversaving" is less of a risk than many families fear, and the penalties for repurposing education savings have decreased:

If you have leftover funds, you can:

• Change the beneficiary to a relative of the original beneficiary
• Use funds for graduate school or continuing education
• Roll up to $35,000 to a Roth IRA over several years (under SECURE 2.0 rules)
• Use up to $10,000 for K-12 tuition per year
• Pay off up to $10,000 in student loans per beneficiary
• Withdraw funds penalty-free in the amount of any scholarships received (ordinary income tax will be owed on any earnings)

If you withdraw for non-qualified expenses:

• You pay ordinary income tax plus a 10% penalty, but only on the investment gains and dividend/interest earnings
• Original contributions are withdrawn tax- and penalty-free
• It's sometimes more favorable than a taxable account because taxes on dividends, interest, and capital gains are deferred until money is withdrawn, allowing more money to compound over time

The risk of undersaving, which often requires taking out student loans at higher interest rates, is typically greater than the risk of oversaving. A good plan helps you target the right amount while maintaining flexibility to adapt as situations change.

Yes, up to $10,000 per year per student can be withdrawn from a 529 plan for K-12 tuition at public, private, or religious schools without federal tax consequences.

However, there are some details to consider:

• State tax treatment varies: Some states don't recognize K-12 withdrawals as qualified and may impose state taxes or recapture previously claimed deductions
• Opportunity cost: Money used for K-12 won't be available for college, where costs are typically much higher
• Time in market: Withdrawing funds after only a few years reduces the benefit of interest/dividends/capital gains compoounding

For many families, it makes sense to prioritize college savings, paying for K-12 expenses with other funds, if possible. Your specific situation, including state tax treatment and overall financial picture, could suggest a different approach.

A scholarship doesn't mean your 529 savings are wasted. You have several options:

• Penalty-free withdrawal: You can withdraw funds up to the amount of the scholarship without paying the 10% penalty. You'll only owe ordinary income tax on the earnings.
• Keep saving for other expenses: Some scholarships cover tuition, but not room and board, books, or other qualified expenses. Your 529 can cover these costs tax-free.
• Save for graduate school: Many students pursue advanced degrees. Your 529 funds can be used for graduate and professional school expenses.
• Change the beneficiary: Transfer the funds to the beneficiary's sibling, cousin, or other family member who can use them for their education.
• Roll to a Roth IRA: Under SECURE 2.0, up to $35,000 can be rolled to the beneficiary's Roth IRA (subject to requirements).

Being granted a scholarship is a good thing. It means the student is being recognized for their achievements, and your savings can stretch further or be redirected to other goals.

Items in the list of qualified education expenses may depend on individual circumstances. You can refer to this list of general categories, but should consult with a qualified tax professional to confirm the treatment for your specific situation.

The important thing to remember is that qualified expenses include more than just college tuition. For federal tax purposes, 529 funds can be used tax-free for expenses that meet the definitions in the Internal Revenue Code and IRS guidance for:

Higher education (college, graduate school):

• Tuition and fees
• Room and board (for students enrolled at least half-time)
• Books, supplies, and required equipment
• Computers, software, and internet access
• Special needs services

K-12 education:

• Tuition only (up to $10,000 per year per student)

Other qualified uses:

• Apprenticeship program expenses
• Student loan repayment (up to $10,000 lifetime per beneficiary)

Check with your 529 plan administrator or a tax professional before making withdrawals.