u/cmw021

Looking for advice on our college savings approach.

We have two children, ages 3 and 4.5. Education is extremely important to our family, and our goal is to fully fund undergraduate education with the ability to help fund graduate or professional school as well. We are not especially impressed with our in-state public options, so we are planning around a potential cost of $100k/year for undergrad.

Current situation:

• Kid 1, age 4.5: $120k in 529
• Kid 2, age 3: $85k in 529
• Currently contributing $1,750/month per child, or $21k/year per child

Assuming 7% annual returns, this would project to roughly $765k per child by age 18.

We recognize this creates a meaningful risk of overfunding the 529s. For any overfunded portion, we would plan to use the allowed $35k per child Roth IRA rollover if eligible. For the remainder, we would likely use the 529s as a generational wealth-transfer vehicle for future descendants. We realize we are very fortunate to even have this option.

That said, we are considering whether it would be better to reduce future 529 contributions and instead split contributions among a 529, UTMA, and parental brokerage account for more flexibility.

One possible monthly contribution structure per child:

• 529: $750/month
• UTMA: $750/month
• Parental brokerage: $250/month

Projected age-18 balances per child, assuming similar returns:

• 529: ~$500k
• UTMA: ~$200k
• Parental brokerage: ~$65k

For education planning, this would still allow us to fund approximately $100k/year for four years of undergraduate education from the 529. Assuming the remaining 529 balance continues to grow at a more conservative rate during college, my rough estimate is that there could still be around $150k left in the 529 after undergrad.

That likely would not fully fund professional school, but the UTMA could potentially be used at that point. My understanding is that by age 24, the child would no longer be subject to the kiddie tax, so withdrawals from the UTMA could potentially be made with little or no long-term capital gains tax depending on the child’s income and the size of the gains. If that is correct, then for meaningful annual withdrawals, the UTMA seems somewhat similar to a 529 from a tax-efficiency standpoint, while offering more flexibility.

The main appeal of this approach is flexibility if one or more of the following happens:

• Child does not attend graduate/professional school
• Child receives scholarships
• Child attends a lower-cost school
• Child pursues a different path entirely
• 529 rules change over time
• We want to avoid having too much locked into education-specific accounts

The downsides I see are:

• Some annual tax drag from dividends/capital gains in the UTMA, especially under kiddie tax rules while they are younger
  • Tax-efficient ETFs should minimize this, but not eliminate it
• The child gains control of the UTMA at age of majority, which is a real risk
• This strategy assumes responsible children who would use the UTMA for education or another intended purpose

Curious how others would think about this. Would you keep aggressively funding the 529s given our education goals, or would you start shifting more toward UTMA/parental brokerage for flexibility?

Any other potential pitfalls that I am missing here?