For many American families, 529 plans are considered a cornerstone of responsible financial planning.
By mid-2025, Americans held a record of roughly $500 billion in these tax-advantaged accounts designed specifically to fund education expenses, according to Empower (1). But not everyone is convinced these accounts are the best option, including longtime financial planning expert David Blanchett.
Blanchett prefers to save money for his four children in regular investment accounts that incur capital-gains taxes when assets are sold. For him, the freedom to decide how the money is ultimately used outweighs the benefit of tax savings (2).
The main selling point of 529 plans is that investments grow tax-deferred and withdrawals are tax-free when used for qualified education expenses (3). But that benefit comes with strings attached. Withdraw funds for anything else and you’ll typically face income taxes, plus a 10% federal penalty on earnings (4).
For Blanchett, that restriction is a dealbreaker. While 529 funds aren’t locked away, it may not make financial sense to use them if the money isn’t guaranteed to go toward education.
Standard brokerage accounts don’t carry those constraints, allowing Blanchett — who isn’t convinced a degree is necessarily the best way to help his children — to use savings freely for tuition or other priorities, like buying a house or emergencies, without repercussions.
“We are actively saving money that we may use for college,” he told the Wall Street Journal (2). “But not necessarily.”
Blanchett’s personal experience also shaped his thinking. He and his wife had to pay off more than $400,000 in student debt, and by the time they could start saving, their oldest was close to college age, reducing the appeal of a 529’s tax advantages.
Some people in Blanchett’s position might have pushed to save sooner, even when they couldn’t really afford to. But Blanchett believes securing the parents’ finances should be the first priority.
“The best thing we can do for our kids is to be very stable financially and have lots of emergency savings,” he said.
Blanchett isn’t alone in his skepticism with 529s, as other parents are also reconsidering how — and whether — to prioritize college savings for their children.
A degree is no longer considered a guaranteed path to financial security. Rising tuition costs, crowded graduate job markets and the potential for artificial intelligence to disrupt entire industries are all fueling doubts about higher education’s long-term return on investment.
Parents are also increasingly expected to support children in other ways as living costs rise. These competing priorities can force difficult trade-offs, especially as parents juggle their own expenses, including saving for retirement.
According to a 2024 survey by Northwestern Mutual, nearly three-quarters of parents are considering helping their children buy a home. Among them, 29% say helping with a home purchase is more important than paying for college, while 55% say it’s equally important (5).
Read More: 5 essential money moves to make once you’ve saved $50,000
A common alternative to 529s is investing through taxable accounts. However, there are other alternatives that parents can also explore.
For example, Lauren Ziminsky told the Wall Street Journal she chose to invest $130,000 earmarked for her two children in a rental property. Ziminsky expects the property to appreciate and plans to use a cash-out refinance to help cover future tuition, or something else if her children don’t attend college.
“I don’t know in 10 years what college is going to mean,” she said.
529s have become more flexible in recent years, as funds can now be used for a wider range of education-related expenses, including trade schools, K-12 tuition and student loan repayment (6).
One of the most notable recent changes allows unused 529 funds to be rolled into a Roth IRA tax-free for the beneficiary — up to a lifetime limit of $35,000. However, the rollover is subject to conditions: the account must be at least 15 years old, transfers are capped annually, and only contributions made at least five years earlier are eligible (7).
There are also legislative efforts underway to expand 529 uses further. Proposed bills in Congress would allow funds to be used for first-time home purchases, though these measures have not yet passed (8).
Even with these developments, 529 plans remain primarily designed for education spending. For some families, that limitation is enough to outweigh the tax benefits.
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Empower (1); The Wall Street Journal (2); Investopedia (3); Legal Clarity (4); Northwestern Mutual (5); Saving for College (6, 7); Lou Correa (8).
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.
