If you’re a parent planning to send your child to college at some point in the future, it’s important to understand what the average annual costs are to send a child to an accredited college in the U.S. in 2025:

• $25,668.00 per year for in-state public universities
• $45,413.00 per year for out-of-state public universities
• $60,358.00 per year for private universities

These totals include tuition, fees, room, board, and other expenses like books and transportation. Over four years, you can expect to spend between $100,000 and $260,000+, depending on the type of school and location.

These are big numbers, especially if you have more than one child who wants to pursue a college degree. Even if you are a high-income earner, with rising income, the question isn’t just how you’ll pay for it, but how smartly you plan for this future expense.

One tool many Boston financial advisors recommend is the 529 plan. It’s a flexible, tax-advantaged way to start preparing now, whether your child is in diapers or already dreaming about a degree from a college or university.

In this article, we’ll look at how 529 plans work, including the associated tax benefits, investment choices, contribution suggestions, and what to do if your child opts not to go to college after you have created a 529 plan. 

Read our latest Quick Guide: Building Financial Resilience in Boston, MA: Long-Term Growth Strategies

What Is a 529 Plan?

A 529 plan is a state-sponsored investment account designed to encourage saving for education expenses. Massachusetts offers its version, called the U.Fund College Investing Plan, but you’re not limited to the plan in your home state.

It may be advantageous for you to compare 529 plans across state lines to evaluate investment options or fees.

Although 529s are primarily used for college, they can also be used for K-12 tuition (up to $10,000 per year), specific apprenticeship programs, and even student loan repayment (up to $10,000 lifetime per beneficiary).

Tax Benefits of 529 Plans

One of the key reasons Boston financial advisors recommend 529 plans is their tax treatment. Even if you pay for your child’s education directly, the tax-free growth you could realize on contributions could make a meaningful difference over time.

A 529 plan can be part of a broader financial strategy, especially when considering long-term wealth transfer, education gifting, or reducing the size of a taxable estate.

Here’s how the tax advantages work:

• Tax-deferred growth: Your investments grow without being taxed each year.
  
• Tax-free withdrawals: As long as the money is used for qualified education expenses, withdrawals (including growth) are not taxed.
  
• State tax deduction: As a Massachusetts resident, you may deduct up to $1,000 (individual) or $2,000 (married filing jointly) in contributions to a Massachusetts 529 plan on your state income taxes.
  

How Much Should You Contribute to a 529 Plan?

There’s no one-size-fits-all number. Some parents aim to save enough for in-state tuition, while others may want to cover private school costs or graduate programs.

Massachusetts 529 plans allow very high contribution limits, over $500,000 per beneficiary. That’s not a target for most families, but it does give flexibility for those looking to front-load savings or make strategic use of the annual gift tax exclusion.

Let’s say a Boston couple opens a 529 plan when their child starts kindergarten. They want to be able to cover four years at a private college, which could cost approximately $350,000 by the time their child graduates from high school.

If they invest early and consistently, contributing about $800 to $1,000 per month could put them within reach of that target, especially with tax-deferred growth over 12+ years.

Of course, actual results depend on investment performance, financial aid, and other factors. But starting early and saving regularly makes a big difference, even if you don’t cover the full amount.

What About Investment Choices?

529 plans typically offer a range of investment alternatives, including age-based options that become more conservative as your child nears college age. This makes them similar to target-date retirement funds but designed for educational timelines.

When you work with a financial advisor in Boston, this professional can help you choose options aligned with your overall risk tolerance and savings goals rather than relying solely on a preset age-based track.

Some plans also offer various socially responsible investment options, which can appeal if you want to align your values with your financial decisions. 

What If My Child Doesn’t Go to College?

A common concern for parents is: What happens if we save in a 529 plan and our child doesn’t use it? Here’s the good news: 529 plans are more flexible than many people realize:

• If your child doesn’t attend college, you can name another qualifying family member as the beneficiary. That could include a sibling, cousin, or even yourself.
  
• The original contributions are never taxed or penalized if you withdraw money for non-educational purposes. Only the growth is subject to income tax and a 10% penalty.
  
• As mentioned, 529 funds can also go toward K–12 tuition, apprenticeship programs, or up to $10,000 in student loan repayment.

So, while a 10% penalty on earnings can apply in some cases, the principal is never lost, and in many situations, the account can still be used for another purpose or person.

Other Considerations for Boston Parents

Boston is home to some of the country’s most expensive and prestigious colleges, from Harvard and MIT to Boston University and Northeastern. That makes planning even more important for local families.

Here are a few additional factors to think about:

• 529 plans owned by a parent typically have a minimal effect on financial aid eligibility, but the ownership structure can matter. If a grandparent owns the 529, distributions may be counted differently.
  
• If saving for more than one child, consider using separate 529 accounts for each. This allows for more precise tracking and distribution.
  
• Contributing to a 529 can be an efficient way to gift assets while retaining some control. The IRS even allows five years of gift-tax exclusions to be front-loaded into a 529, which can appeal to grandparents and other family members.

   

How Sherr Financial Associates Can Help

At Sherr Financial Associates (SFA), we understand that education planning is just one aspect of your financial life. We work with numerous Boston-area families to help ensure that college savings fit into your broader goals, from retirement income planning to tax strategies and estate coordination.

Whether you’re just getting started or reassessing your college savings plan as your child approaches high school, we can provide guidance based on your complete financial picture. Connect with us today to learn about 529 college planning.

The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.