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.
- 1Using a traditional brokerage account instead of a 529 to maintain total control over the funds
- 2Using a combination of both 529 plans and regular brokerage accounts
- 3Utilizing UTMA accounts as an alternative
- 4Buying physical toys and gifts that add clutter to the parents' house
- 5Keeping money in cash or separate brokerage accounts earmarked mentally in one's own name
- 6Splitting contributions between a 529 plan and a taxable brokerage account
- 7Using alternative accounts like UGMA accounts for relatives to contribute
- 8Estimating college costs using compound interest calculators and working backward
In their words
Unedited, most upvoted first, each linked to the thread it came from.
“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 ↗
“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 ↗
“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 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 ↗
Where this came up
People with this problem also raised
- 5Should I invest extra savings in a brokerage account or a Roth IRA?
- 10What funds and allocations should I pick for a new Roth IRA?
- 5Should I do a Roth conversion or stick to traditional 401k?
- 5Should I use my savings or take a loan for college tuition?
- 3How to save money for a future nonprofit tax-free
- 6Should I buy property or keep my money invested?