12 Sep Back-to-School: Planning Ahead for Education Costs 09.12.25
Back-to-School: Planning Ahead for Education Costs
Vice President, Wealth Management Advisor
As families across Kentucky head into another back-to-school season, it’s a natural time to think ahead. New shoes and supply lists are a reminder of how quickly the years go by —and why a simple, consistent savings plan can make college or career training far less stressful later.
Below is a quick, practical guide to the main ways families save for education — and how to choose what fits your situation.
529 College Savings Plans (the go-to for most families)
Why people like them
- Tax advantages: Earnings grow tax-deferred and qualified withdrawals are tax-free at the federal level. Kentucky also exempts qualified withdrawals from state income tax.
- Broad usage: Tuition, fees, books, computers, room & board, up to $10,000 per year for K-12 tuition through 2025 (doubling to $20,000 beginning in 2026), certain registered apprenticeship costs, and even a limited amount of student loan repayment.
- “What if we overfund?” peace of mind: Starting in 2024, unused 529 funds can be rolled into the beneficiary’s Roth IRA (lifetime max $35,000), subject to the annual IRA contribution limit and other rules (e.g., the 529 must be 15+ years old; recent contributions are restricted).
Good to know
- Student loan repayment from a 529 is capped at $10,000 lifetime per beneficiary (and $10,000 for each of the beneficiary’s siblings).
- K-12 use is for tuition only (not supplies/room & board) and is capped at $10,000 per beneficiary per year through 2025, then $20,000 starting in 2026. State conformity can vary.
- Thanks to the recently passed One Big Beautiful Bill Act, 529s now offer even more flexibility starting in 2026. In addition to college and K–12, funds can be used for vocational training, professional licenses, and certifications — broadening their usefulness beyond traditional higher education.
Coverdell Education Savings Accounts (ESAs)
These can also cover K-12 and college expenses, but the contribution limit is $2,000 per year per beneficiary and phases out at higher incomes. Withdrawals for qualified expenses are tax-free.
Custodial Accounts (UGMA/UTMA)
A flexible, taxable way to save/invest in a child’s name. There are no education-use restrictions, but the assets legally belong to the child and transfer to their control at the “age of majority” (varies by state, typically 18–21, sometimes up to 25 under UTMA). This flexibility can be a pro — or a con.
“Can a Roth IRA help with college?”
Primary purpose = retirement. But:
- Contributions to a Roth IRA can be withdrawn anytime tax- and penalty-free.
- Earnings withdrawn before 59½ are generally taxable; however, the 10% early-withdrawal penalty on earnings is waived for qualified higher-education expenses (the earnings may still be taxed). Plan carefully so you don’t derail retirement.
FAFSA & Grandparent Help: A Big Positive Change
Beginning with the 2024–25 FAFSA, distributions from grandparent-owned 529s no longer count as student income, removing the old aid penalty. That’s a meaningful planning opportunity for families.
How Much Should We Save?
- Start early, automate it. Even modest monthly amounts compound meaningfully over time.
- Pick a target and back into a monthly number. We can model an in-state public, regional private, or “undecided” path.
- Balance with retirement. There are loans for college; there aren’t loans for retirement.
Kentucky-Specific Notes (Quick)
- No KY deduction/credit for 529 contributions (still federal tax-free growth & qualified withdrawals).
- Qualified withdrawals from KY Saves 529 are free from Kentucky state income tax (in addition to federal).
- KY’s state-sponsored plan is KY Saves 529 (administered by KHEAA); you can use any state’s plan but compare fees/investments.
FAFSA & Grandparent Help: A Big Positive Change
The most important step is simply to begin. Whether you prefer the tax advantages of a 529, the flexibility of a custodial account, or a mix, getting a plan in place now keeps your long-term options wide open.
Education planning is one example of how financial strategies continue to evolve — from new legislation expanding 529 uses, to shifts in how financial aid is calculated. Working with an advisor can help ensure you stay informed and take advantage of opportunities as they emerge.
At WealthSouth, we help families create strategies that balance the desire to fund education with the need to prepare for retirement and other long-term goals. If you’d like to explore which approach may be the best fit for your family, we’d love to start that conversation.
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*NOT financial institution guaranteed *NOT a deposit *NOT insured by any federal government agency. WealthSouth is a Division of Farmers National Bank, Danville, KY.