Imagine this: You keep aside $10,000 for your child’s college tuition in 2025. Ten years later, that same course now costs $18,000 due to inflation. But you do not have to pay this hiked price. You pay the original invested amount and save a whopping $8000.

This would be true if you, as a parent, had opted for a 529 plan—a tax-advantaged savings account specifically for education—you only pay the original invested amount, potentially saving thousands of dollars.

With college costs steadily rising and inflation eroding purchasing power, many families are asking: Are 529 plans still helpful during inflation? 

Below is a detailed beginner-friendly guide that explains how 529 plans work, how they navigate inflationary times, and whether they’re a wise choice for your child’s future education.

What is the 529 plan?

A 529 plan is a savings plan designed to help families set aside money for future education expenses. There are two main types:

Prepaid Tuition Plans: Let you lock in today’s tuition rates at eligible public and private colleges. K-12 education costs are not eligible for this plan. 

Education Savings Plans: Let you invest in mutual funds or ETSF, with returns growing tax-free. Unlike prepaid plans, education savings plans will cover the costs of books, laptops, and room. 

Both types offer powerful tax advantages and long-term benefits for education savings. By investing early, you can potentially outpace inflation and reduce the impact of rising tuition.

How does a 529 plan work against inflation?

Originally, 529 plans covered only postsecondary education expenses. Over time, they’ve expanded to include:

K–12 education costs (up to $10,000 per year)

Apprenticeship programs

Student loan repayment (up to $10,000)

Transfers to Roth IRAs (starting in 2024, with limits)

While anyone is allowed to open a 529 account, parents or grandparents create them on the student’s behalf. 

States or financial companies run 529 plans. You can opt from a small list of investments, usually mutual funds or ETFs. Some options are age-based, meaning they automatically become more conservative as the child gets closer to college.

Now that you know how 529 plans work, here’s the cherry on top: Investments in a 529 account are not subject to any federal and state income taxes, meaning all your capital gains, profits, dividends, or interest earnings are tax-free. 

Plus, if you choose a prepaid tuition plan, it is possible to lock in today’s tuition rates. This will protect you from future price hikes—even if college costs double by the time your child enrolls.

Please note: Any withdrawals or usage of money for non-educational purposes will be subject to a 10% penalty (except death or disability).

What is the best age to start a 529 plan?

The earlier, the better. Starting a 529 plan at birth gives your investment the most time to grow tax-free. But even if you’re late to the game, don’t worry—529 plans can still be a smart move at different stages of a child or student’s life. Here are some scenarios to consider:

Starting Early: Birth to K–12

You will maximize your savings if you open a 529 plan when your child is born. Apart from college, 529 plans can also cover up to $10,000 per year for K–12 school fees.

With more years of compounding, you will get more tax-free growth. Plus, you will have the flexibility to use it for both school and future college costs. There will be more age-based investment options for you. 

Mid-Game Planning: High School to College

Even if your child is already in their teens, a 529 plan can still help offset future college expenses. Contributions can be invested in age-based portfolios that become more conservative as college nears.

The savings can be used for tuition, room and board, books, and other college-related costs. Many states offer tax deductions or credits for contributions, even last minute. 

Post-Grad Relief: Paying Down Student Loans

Didn’t use all the 529 funds for school? Thanks to recent changes, you can now use up to $10,000 per beneficiary to pay off student loan debt. This will allow you to repurpose unused funds without penalty.

529 Plans: Frequently Asked Questions (FAQs)

Are 529 plans a bad idea? 

While there are no bad ideas when it comes to saving for your child’s future education, a 529 plan does have some limitations when compared to a traditional savings account or other educational savings instruments. 

For example, you can withdraw money for educational purposes only or face a penalty. 

Additionally, you are restricted to pre-selected portfolios, often offered by the state or plan provider. While switching beneficiaries is allowed, but only within the same family to avoid penalties.

How to open a 529 plan

Choose between a savings plan or a prepaid plan.

Compare plans across states. You’re not required to use your home state’s plan.

Select a beneficiary (your child, grandchild, yourself, or another U.S. citizen).

Open the account online, fund it, and review any associated fees.

Pro tip: Consult a financial advisor if you’re unsure which plan suits your goals.

What are 529 plan contribution limits? 

As of 2025, you can contribute up to $19,000 per year ($38,000 for married couples) per beneficiary without triggering the federal gift tax. You can also “superfund” up to $95,000 ($190,000 for couples) in a single year, spread over five years for tax purposes. 

What if my child does not want to go to college? 

Let’s assume you save thousands of dollars for your child’s college tuition fees, but they do not end up in college. In a case like this, the 529 plan allows you to transfer the amount to another qualifying family member. You can still withdraw the funds, but they’ll be subject to income tax and a 10% penalty. 

Where can I get a 529 college savings plan calculator? 

You can estimate your 529 college savings plan using online calculators from various online sites. These tools indicate ideal monthly contributions according to investment growth, tuition inflation, and possible state tax benefits. 

Recommended college savings calculator options: 

Charles Schwab 

Fidelity

Bankrate  

Inflation may make the future seem uncertain, but with the right strategy, you can stay one step ahead. A 529 plan not only helps protect your savings from inflation but also ensures your child gets the education they deserve without overwhelming student debt.

Start planning today—your future self (and your child) will thank you.