529 College Savings Plan: Strategies for High-Income Earners

Jackson Keenan, CFPBy Jackson Keenan, CFP®, Director of Financial Planning

Parents saving for their children’s college tuition and expenses becomes increasingly essential as college costs continue to rise. At MONTAG, our clients are high-income earners, which makes their funding options unique. In today’s post, I explore how they can save for college while taking advantage of potential tax benefits and wealth-building opportunities through a 529 college savings plan.

What Is a 529 College Savings Plan?

529 plans come in two forms: Prepaid Tuition Plans and Education Savings Plans. 

Prepaid Tuition Plans allow you to lock in the future cost of tuition and fees at current prices. However, they are only applicable to participating colleges and universities for the beneficiary. State governments sponsor most plans and have residency requirements for the saver and/or beneficiary. The main drawback is if the beneficiary does not attend a participating school, the plan may pay out less. With only 9 states and 300 private colleges participating, I am not a big fan of these. 

To contrast, an Education Savings Plans allow you to save and invest for the beneficiary’s future qualified higher education expenses. These expenses can include tuition, fees, room and board, books, and computers at almost any US college or university, and some non-U.S. High-income individuals can contribute to 529 savings plans, which offer tax advantages and investment growth potential. Although contributions to 529 plans do not provide federal tax deductions, many states offer tax benefits such as deductions or credits for contributions. These plans allow for larger contributions, which can help high-income individuals save significant amounts for college expenses. But be forewarned, not using your 529 for qualified expenses results in federal taxes for the earnings portion of the withdrawal and a 10% penalty.

Additional College Savings Strategies

Employee Benefits

I recommend investigating to see if your company offers savings plans, tuition reimbursement, or scholarships for employees’ dependents. More importantly, these types of programs should not have income caps to limit participation.  


Trusts can allow trustees to distribute assets for the beneficiaries’ education, medical expenses, support, and maintenance. They are also a part of a broader estate planning strategy to reduce estate taxes.  The drawback is, depending on the structure, an unwanted tax bill can be owed by the trust, the beneficiary, or the grantor.

Pay Directly

It is important to note that tuition checks paid directly to the university are not applied against your annual gift tax exemption (currently $17,000 per person for 2023) or lifetime gift exemption (currently $12,920,000 per person for 2023.)

Other Options

Regardless of income level, I recommend students apply for scholarships and grants. Many organizations offer merit-based scholarships that ignore parental income. In addition, Roth IRAs can be withdrawn for educational purposes without a penalty, but you will still have to pay income taxes. Most of the time, however, a young student will not have a significantly funded Roth to tap into for tuition and other college expenses.

We have also found that many of our clients have chosen to utilize 529 Education Savings Plans, but they were a little too enthusiastic with the amount of funds they put away.  Next month, I will discuss what to do with overfunded 529 Education Savings Plans.  


A Message From MONTAG Wealth Management

The information provided is for illustration purposes only.  It is not, and should not be regarded as “investment advice” or as a “recommendation” regarding a course of action to be taken. These analyses have been produced using data provided by third parties and/or public sources. While the information is believed to be reliable, its accuracy cannot be guaranteed. MONTAG employees do not provide legal or tax advice. For specific legal or tax matters, you should consult with your own legal and/or tax advisors.

Certified Financial Planner Board of Standards, Inc. (CFP Board) owns the CFP® certification mark, the CERTIFIED FINANCIAL PLANNER™ certification mark, and the CFP® certification mark (with plaque design) logo in the United States, which it authorizes use of by individuals who successfully complete CFP Board’s initial and ongoing certification requirements.


  • Jackson Keenan

    As Director of Financial Planning, Jackson is responsible for providing comprehensive financial planning services to MONTAG clients. He also supports Portfolio Managers with guidance and education on the topics of retirement strategies, executive compensation, insurance, taxes, and estate planning.