529 plan vs regular brokerage account for kids
Parents are caught between the tax advantages of a 529 plan and the rigid restriction that the money must be used for education. Because they cannot predict if their children will attend college or want to spend the money on housing, cars, or other adult expenses, many choose a standard brokerage account to keep their options completely open.
What people tried
Every workaround mentioned in the threads below. We haven’t tested any of them — and nobody here is claiming they worked.
Found another way around this?
Share your steps and trade-offs so fellow engineers don't have to reinvent the wheel. No account required.
- 1Using a traditional brokerage account instead of a 529 to maintain total control over the fundsDid this help you?
- 2Using a combination of both 529 plans and regular brokerage accountsDid this help you?
- 3Utilizing UTMA accounts as an alternativeDid this help you?
- 4Buying physical toys and gifts that add clutter to the parents' houseDid this help you?
- 5Keeping money in cash or separate brokerage accounts earmarked mentally in one's own nameDid this help you?
- 6Splitting contributions between a 529 plan and a taxable brokerage accountDid this help you?
- 7Using alternative accounts like UGMA accounts for relatives to contributeDid this help you?
- 8Estimating college costs using compound interest calculators and working backwardDid this help you?
- 9Using traditional 529 savings plansDid this help you?
- 10Funding taxable brokerage accounts to bridge future expensesDid this help you?
- 11Paying for college out of current cash flow while dialing back ongoing retirement savingsDid this help you?
- 12Keeping funds in a regular savings accountDid this help you?
- 13Putting money into high-yield savings accounts (HYSAs)Did this help you?
- 14Opening 529 education savings plansDid this help you?
- 15Setting up UTMA/UGMA minor brokerage accountsDid this help you?
- 16Using CDs (certificates of deposit), though they often require high minimum deposits.Did this help you?
- 17Investing through a standard custodial brokerage account (UTMA).Did this help you?
- 18Funding a 529 plan anyway to take advantage of the Roth IRA rollover benefit.Did this help you?
- 19Opening a standard brokerage account in the parent's own name for the child's future use.Did this help you?
- 20Setting up a UTMA custodial accountDid this help you?
- 21Consulting an estate lawyer to set up an irrevocable trustDid this help you?
- 22Keeping funds in a separate taxable account in the parent's name and gifting the money laterDid this help you?
- 23Using a 529 education savings plan and relying on rollover options to a Roth IRA if unusedDid this help you?
- 24Opening both account types for all children to secure free government or foundation grants while directing additional savings primarily into 529 plansDid this help you?
- 25Matching contributions manually across different account types to keep balances even between siblings regardless of tax efficiencyDid this help you?
In their words
Unedited, grouped by where they were said, most upvoted first within each place, each linked to the thread it came from.
“As the title suggests, I'm wondering if I would I be better off saving for my youngest (1 y/o) kid's college savings in a 529, or in my Roth IRA?”source ↗
“To me, it seems like saving the money for my 1 y/o's college savings in my Roth IRA instead of their 529 is the move to make given the greater flexibility and no 10% penalty on unqualified expenses, but I'm curious if there's something I'm not considering?”source ↗
“For those with children, why did you choose a 529 compared to just generally saving and investing separately for their education?”source ↗
“My husband and I want to set up savings accounts for our two kids, but are very conflicted on whether to do 529s or just regular brokerage accounts.”source ↗
“We’re hesitant on 529’s because we just don’t know what college will look like for them.”source ↗
“I certainly don’t want to bank on scholarships, but don’t want to “waste” the money if they get a lot of college paid for.”source ↗
“I’d like to be able to use the money towards their housing, a car, moving expenses, etc. if that ends up making more sense in the long run.”source ↗
“What would be the best route to go? Pros and cons to it all?”source ↗
“I know about the 529. I understand it's used for education expenses from boarding to actual tuition... I don't really want to go this route. What if they don't choose college?”source ↗
“My desire would be to set them up with an account and be able to deposit monthly into it, and also add money given from family into it. I would want them to have access to it until later in life, not at 18 years old.”source ↗
“My nephew is five and his parents buy him too many toys and we’re out of ideas and don’t want to add more clutter and shit into their house. So we thought we’d just open a savings account for him to give later in life and were wondering what’s the best way to go about it? T bills or just a regular brokerage with s&p and does fidelity let us do that easily or would I have to make him his own email account?”source ↗
“Definitely in the minority, but for various reasons, we are also using backdoor Roth IRAs as a college savings mechanism.”source ↗
“When I did this analysis years ago, I found the Roth IRA withdrawals counted as income for the FAFSA. Theoretically it would only work well their final year. So I went with 529. Things could have changed, but something to think about.”source ↗
“I put $1,000 into my non eligible child’s Trump account to match the younger one that got $1,000. It’s not optimal, just keeping things even. I’m not contributing more unless they add tax breaks.”source ↗
“We opted for multiple vehicles because I didn't want to overdo it with 529 and then be stuck trying to figure out what to do with the earnings if they are unused so choosing multiple accounts works better for us.”source ↗
“So how much can/should I put into a 529? Can it be used for anything else, if the kid decides not to go to college?”source ↗
“I’m not sure if I should keep it in a regular account or switch to a different one.”source ↗
“What would you recommend? Any recommendations for me? I’m lost and new to the finance world.”source ↗
“Looking for some advice on what people are using to save/invest money for their kids!”source ↗
“I’m specifically looking for something that isn’t education/college-specific.”source ↗
“I’d rather have something she can use for whatever she wants/needs in the future, rather than something restricted to education.”source ↗
“I’d much rather have something where we can just contribute, say, $50–$200 a month and let it grow over the next 17+ years.”source ↗
“I’m open to anything because honestly I’m a little overwhelmed by all the different options 😂”source ↗
“I have a 17 year old and a 10 year old does it make sense to open it for both of them Trump account.”source ↗
“I read in some posts that those covert to traditional IRA and kids start paying taxes or parents pay kiddie tax until kid is 24.”source ↗
“There is some way to convert it to ROTH IRA which was not very clear to me. Do you avoid all tax if you convert to ROTH IRA?”source ↗
“I have two kids - born in 2024 and 2026. I’ll be opening a Trump account for my 2026 baby for the free $1000. My question is - what’s the best kind of account to open and deposit $1000 into for my 2024 baby?”source ↗
“Obviously opening a Trump account at the exact same time and depositing $1000 would keep things the most even/fair, but I feel dumb doing that when 529 seems like the clear better option for tax-free growth. I just don’t want it to be weird if one of them ends up with significantly more money or restrictions on what to do with it.”source ↗
Where this came up
People with this problem also raised
- 14Should I invest extra savings in a brokerage account or a Roth IRA?
- 32What funds and allocations should I pick for a new Roth IRA?
- 2Where should I put small cash gifts for my child?
- 2What kind of joint brokerage account should we get for bills and savings?
- 6How to balance retirement savings and college funds
- 3Can you open a 529 for yourself then transfer it to your kid?