June arrives at a meaningful moment for families with college on the horizon. High school graduations are happening, college acceptance letters have been opened, and for many households, the reality of tuition costs is moving from abstract to immediate. Whether you are years away from writing that first tuition check or weeks away, June is a useful time to review what you have saved, how it is invested, and whether your strategy reflects the rules as they exist today, several of which have changed recently in ways that work in families’ favor.
The 529 Plan: Still the Cornerstone
For most families, the 529 savings plan remains the most tax-efficient vehicle for education savings. Contributions grow tax-free, and withdrawals used for qualified education expenses are not subject to federal income tax. Nearly 40 states also offer a state income tax deduction or credit for contributions, adding a further incentive to save within the plan rather than outside it.¹
There is no annual IRS contribution limit for 529 plans, but contributions are treated as gifts for federal tax purposes. In 2026, the annual gift tax exclusion is $19,000 per beneficiary for individuals, or $38,000 for married couples filing jointly.² Families with the means to make a larger upfront contribution can take advantage of superfunding: contributing up to $95,000 per person (or $190,000 per couple) in a single year and electing to spread the gift tax impact over five years.³
What Changed in 2026
Two significant updates took effect this year that are worth understanding:
The One Big Beautiful Bill, passed in mid-2025, expanded the permitted uses of 529 funds in two meaningful ways. The annual limit for K-12 education expenses doubled to $20,000, and 529 funds can now be used for a broader range of vocational training programs, apprenticeships, and postsecondary credentialing, not just traditional four-year colleges.⁴ For families whose children may pursue non-traditional education paths, this flexibility removes a longstanding concern about having “too much” saved in a 529.
The simplification of the FAFSA, which took effect for the 2024-2025 award year and continues through the 2026-2027 cycle, changed how grandparent-owned 529 plans are treated in financial aid calculations. Previously, distributions from a grandparent-owned 529 were counted as student income on the following year’s FAFSA at a rate of up to 50% — a significant penalty. Under the new rules, grandparent-owned 529 distributions are no longer reported as student income at all, making grandparent-funded accounts a more powerful and flexible planning tool than they were just a few years ago.⁵
One important caveat: more than 200 private institutions use the CSS Profile rather than the FAFSA to award institutional aid, and the CSS Profile may still consider grandparent-held assets. For families applying to schools that use the CSS Profile, the strategy requires additional review. ⁵
How 529 Plans Interact with Financial Aid
A common concern among families is whether saving in a 529 will reduce their child’s eligibility for financial aid. For parent-owned plans, the impact is modest: parental assets are assessed at a maximum rate of 5.64% in the federal aid formula. On a $50,000 529 balance, that translates to a reduction in potential aid eligibility of roughly $2,800 per year, a figure that is far smaller than the tax-free growth and distribution benefits the plan provides over time.6
Reviewing the Investment Allocation
One of the most common and costly mistakes in 529 planning is failing to adjust the investment allocation as college approaches. A plan invested aggressively for a child who is now two years from enrollment carries meaningful market risk at exactly the wrong time. Most plans offer age-based or enrollment-date portfolios that automatically shift toward more conservative holdings as the target date nears.
For families with younger children, the opposite risk applies: an overly conservative allocation in the early years leaves significant growth potential on the table over a decade or more of compounding.
What to Review This Month
A useful June college savings check-in covers four questions: Is the account balance on track relative to projected costs? Is the investment allocation appropriate for the child’s age and enrollment timeline? Are contributions keeping pace with what the plan requires to meet the goal? And have any recent life changes, such as a new sibling, a change in income, or a shift in education plans, affected the strategy?
These are exactly the kinds of questions your Wedbush advisor or registered representative is equipped to help answer, whether education funding is part of a broader financial plan review or a standalone conversation.
Bottom Line: College savings is not a set-it-and-forget-it strategy. Between recent legislative changes, updated FAFSA rules, and the ever-present need to keep contributions and allocations calibrated, an annual review can make a meaningful difference in how prepared your family is when the bills arrive.
Sources:
[1] https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state
[2] https://investor.vanguard.com/accounts-plans/529-plans
[3] https://www.savingforcollege.com/article/maximum-529-plan-contribution-limits-by-state
[4] https://www.monarch.com/blog/savings/529-plan-guide
[6] https://529plancalculator.com/financial-aid-impact
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