Lately, I’ve had numerous conversations with clients and prospects about college funding. With the August semester right around the corner, it’s top of mind for many parents. In case you are just a step or two behind these parents, let’s look at the often-overlooked complexities of funding a degree.
The “Complexity” Shift: Saving Is Step One—Distribution Is the Hard Part
Saving for college is important. But for many families, the bigger challenge is the philosophy and mechanics of paying for it.
When tuition bills (and housing, meal plans, travel, books, and fees) become real numbers with real due dates, these issues tend to surface:
- Who should own the assets—and why does that matter?
- Which account should we draw from first?
- How do we avoid accidentally reducing financial aid eligibility?
- How do we balance generosity with teaching responsibility?
In other words, the “best” plan isn’t only about maximizing returns or picking a popular account type. It’s about coordinating taxes, cash flow, financial aid rules, and family values—all under the pressure of time.
The “Vehicles” Trade-off: It’s Not Just What You Save In—It’s Who Owns It
Most parents are familiar with 529 plans, and for good reason. But the choice between a 529, a taxable brokerage account, or a custodial account can have ripple effects—especially around financial aid and flexibility.
Here’s a practical way to think about the trade-offs:
529 plans (including “super-funding”)
- Strengths:
- Potential for tax-free growth when used for qualified education expenses
- Control typically stays with the account owner (often the parent)
- Can be useful for longer-term family education planning if there are multiple children (allowed to change the beneficiary of the 529 account between people)
- Complexities to plan for:
- Qualified vs. non-qualified withdrawal rules matter
- Investment risk still exists—timing becomes important as college nears
- “Super-funding” (accelerating contributions) can be powerful for some families, but it’s not one-size-fits-all and should be coordinated with broader gifting and cash-flow priorities
- Strengths:
Taxable brokerage accounts (parent-owned)
- Strengths:
- Flexibility—funds aren’t restricted to education costs
- Helpful if you’re balancing college with other goals (retirement, helping grandparents, home repairs, etc.)
- Complexities to plan for:
- Capital gains taxes may apply when you sell investments
- The timing of sales and gains can affect the family’s tax picture
- Strengths:
Custodial accounts (UTMA/UGMA)
- Strengths:
- Can be a meaningful way to involve a student in saving and investing
- Complexities to plan for:
- Assets typically become the student’s legally at the age of majority
- Student-owned assets can have an outsized impact on financial aid calculations
- Reduced parental control can be a concern if you want guardrails around spending
- Strengths:
In summary, the same dollar can be treated very differently depending on whether it’s technically owned by the parent or the student. If financial aid is part of your plan, ownership details deserve a careful second look.
Strategic Tax Moves: Credits, Cash Flow, and “Skin in the Game”
Tax strategy often becomes more relevant in the college years than families expect. Once actual tuition payments begin, you may have planning opportunities—but also deadlines and documentation requirements.
Consider a few angles families often overlook:
The American Opportunity Tax Credit (AOTC)
- Potentially valuable during the early college years if you qualify
- Requires planning around 'who pays what and from which account' to ensure expenses remain eligible
- Good recordkeeping is essential (tuition statements, receipts, and how payments were made)
Coordinating withdrawals and taxable income
- If you’re selling investments in a taxable account, the timing and size of gains can affect your overall tax result
- It can be helpful to map out a multi-year plan rather than making decisions one semester at a time
The “skin in the game” factor
- Many parents want their student to have some responsibility, but don’t want them overwhelmed by debt
- The strategy isn’t always “pay everything” or “pay nothing”—sometimes it’s a phased approach:
- Student covers books, fees, or a portion of housing
- Student contributes through summer work or campus employment
- Parents commit to a defined amount per year (not an open-ended promise)
This can be both a financial strategy and a family strategy—because money conversations tend to go better when expectations are crystal clear.
Philosophy & Parenting: How Much Is Too Much?
This may be the most emotionally charged part of college planning, and it deserves to be talked about directly.
Parents often ask some version of:If we can pay for more, should we?The honest answer depends on your broader financial picture and your family values.
Two common models show up:
The “full-ride from parents” approach
- Potential benefits:
- Reduces or eliminates student debt
- Allows the student to focus more on academics and internships
- Potential risks:
- Expectations can become unclear (“Will you also pay for a fifth year? Study abroad? A car?”)
- Students may not feel the cost in a meaningful way unless you intentionally create accountability
- Potential benefits:
The “loan/contribution” model
- Potential benefits:
- Builds budgeting skills and a sense of ownership
- Encourages students to think like consumers (value vs. price)
- Potential risks:
- Too much debt too early can limit choices after graduation
- If the plan isn’t discussed upfront, students may feel surprised or unsupported
- Potential benefits:
A balanced, development-minded version can look like:
- Define the family contribution in writing (even if it’s informal)
- Clarify what is included (tuition only? room and board? meal plan? travel?)
- Tie additional support to goals (maintaining certain academic standards, applying for scholarships, working summers)
This isn’t about being strict—it’s about removing ambiguity before emotions and deadlines collide.
Advanced Considerations: Guardrails for High-Net-Worth Families
For some families, the question isn’t whether they can fund college—it’s how to do so with structure and intention.
In those cases, it may be worth exploring:
Trust planning or customized distribution rules
- Guardrails around what counts as an approved education expense
- Clear boundaries for non-education requests (cars, rent after graduation, business ventures)
Estate planning alignment
- Coordinating education support with gifting goals
- Avoiding unintended imbalances between children or siblings
Multi-generation planning
- Thinking beyond one student and one degree—especially if there are younger children or future grandchildren
These strategies can be highly effective, but details matter. The “right” structure depends on family dynamics, taxes, desired control, and long-term goals.
Closing: A Call to Reflection (Before the First Tuition Bill Arrives)
If you do only one thing after reading this, consider having the “money conversation” with your student sooner than you think you need to.
A few prompts that can keep it productive:
- “Here’s what we can contribute each year—and what we can’t.”
- “Here’s how we’ll decide between schools if costs differ.”
- “Here’s what we expect you to own (work, budgeting, grades, scholarships).”
- “If plans change, here’s how we’ll talk about it.”
College funding isn’t just a savings exercise—it’s a family decision with tax, cash-flow, values-based weightings, and will impact how your kid ultimately thinks and treats money. And because every family situation is unique, the most valuable step is often building a coordinated plan before deadlines force rushed decisions.
Disclosure:
Investors should consider the investment objectives, risks, charges and expenses associated with municipal fund securities before investing. This information is found in the issuer's official statement and should be read carefully before investing. Investors should also consider whether the investor’s or beneficiary’s home state offers any state tax or other benefits available only from that state’s 529 Plan. Any state-based benefit should be one of many appropriately weighted factors in making an investment decision. The investor should consult their financial or tax advisor before investment in any state's 529 Plan.