529 plans often get people’s attention when it comes to saving for education, They offer tax benefits, are easy to set up, and are designed specifically with future education costs in mind. But you might want to explore other options if your goals do not fit into the 529 mold.
529 plans are helpful, but they are not the only way to prepare for education expenses. Several smart and creative alternatives can give you more freedom without locking your money into just one use. Exploring other options can open the door to better customization, more financial flexibility, and solutions that grow with your needs. Below are practical and flexible ways to save for education that go beyond the typical 529 plan:
Use a Roth IRA for Dual-Purpose Savings
Most people think of Roth IRAs as retirement tools, but they can also be used for education expenses. A Roth IRA allows you to contribute after-tax dollars, with your money growing tax-free. You can withdraw your contributions at any time when you need to pay for school. You will avoid the 10% penalty if you use the earnings for qualified education expenses, though income taxes may still apply.
The beauty of a Roth IRA is its flexibility. You can keep the funds growing for your retirement instead if your child doesn’t end up needing the funds for school.
Build a Dedicated Brokerage Account
A regular taxable brokerage account gives you the ultimate control. You can invest in stocks, bonds, and ETFs, and withdraw funds at any time without penalties. There are no limits on how much you can contribute. Also, you are not tied to specific rules about how the money is used. This option works well if you want the ability to change plans later. You will owe taxes on earnings and capital gains, but you can minimize the tax impact by managing your withdrawals carefully with smart planning.
Create a Custodial Account (UGMA or UTMA)
Custodial accounts allow you to save and invest money on behalf of a child. The money in a UGMA (Uniform Gifts to Minors Act) or UTMA (Uniform Transfers to Minors Act) account legally belongs to the child, but you control it until they reach adulthood.
These accounts can be used for anything that benefits the child, not just education. This means they can help pay for tutoring, extracurricular programs, laptops, or travel for school-related activities. But the child can use the money however they want when they reach the age of majority,
Open a High-Yield Savings Account
You can open a high-yield savings account if your education savings goal is just a few years away. Your money stays safe, earns interest, and is available when you need it. It won’t grow as quickly as invested funds, but this option is ideal for short timelines or a portion of your savings you want to keep stable and accessible.
Invest in I Bonds for Inflation Protection
Series I Savings Bonds are a government-backed investment that earns interest based on a fixed rate and inflation. The interest is tax-free if used for qualified education expenses.
You can buy up to $10,000 in I Bonds per person per year. They must be held for at least one year. They are a great option if you want steady, inflation-protected growth for future education costs.