529 Calculator: Saving for College Without the Guesswork

The Ortega family opened a 529 the week their daughter was born, mostly on a relative’s advice, without running a single number — it wasn’t until a decade later, comparing the balance to a friend’s plain savings account, that they saw what the tax-free growth had actually bought them. Their daughter’s grandmother, Eleanor Voss, 66, a retired teacher in Columbus, Ohio, had opened her own separate 529 for the same granddaughter, and had spent three years deliberately not touching it — timing withdrawals for senior year only, based on a rule she’d read about years earlier. That rule stopped applying before her granddaughter ever started college, and nobody had told her.

What the calculator projects

A monthly contribution, expected return, and years until college combine into a projected balance — and separately, what that balance would have been in a regular taxable account after accounting for tax drag on the growth.

$200 a month for 13 years at 6% growth builds to roughly $47,000 — tax-free at withdrawal if spent on qualified education expenses, which meaningfully beats the same growth in a taxable account once you account for taxes on the gains along the way.

The grandparent rule that quietly disappeared

Before the 2024-25 FAFSA cycle, distributions from a 529 plan owned by anyone other than the student or a parent — most commonly a grandparent — counted as untaxed income to the student on the FAFSA, which could reduce need-based aid eligibility by up to half the withdrawal amount. That’s the rule Eleanor had learned years earlier and built her whole withdrawal strategy around: hold off, let the parents’ own 529 and savings carry the early years, and only tap her account once financial aid was locked in for the final year, when it supposedly couldn’t hurt anymore. The FAFSA Simplification Act changed this starting with the 2024-25 award year: distributions from grandparent-owned 529 plans are no longer reported as student income at all. A parent-owned 529 was already treated gently by the old formula; the grandparent penalty Eleanor was specifically planning around had been removed before her granddaughter’s first FAFSA was ever filed.

The Department of Education’s own explanation of the change describes it as part of a broader simplification: the new formula, called the Student Aid Index, replaced the old Expected Family Contribution calculation entirely, and one of the changes bundled into that overhaul was dropping the requirement to report “cash support” and untaxed distributions of this kind. It wasn’t a headline change on its own — it arrived as one line item inside a much larger overhaul of the entire federal aid formula, which is exactly the kind of update that’s easy for a family (or a well-meaning grandparent going on years-old advice) to miss entirely.

The “what if they don’t go to college” objection

529 funds aren’t locked to a single beneficiary — they can be redirected to a sibling or other qualifying relative, used for some non-college education paths, or (since a recent rule change) partially rolled into a Roth IRA for the beneficiary under specific conditions. The “wasted if unused” fear is less true than it used to be.

State tax deductions — check yours specifically

Many states offer a state income tax deduction for contributions to that state’s own 529 plan — but not all states offer this, and some let you deduct contributions to any state’s plan. It’s worth checking your specific state’s rule rather than assuming, since it can meaningfully change which plan makes sense to use.

Front-loading versus monthly contributions

A large lump sum contributed early gives compounding more years to work versus the same total spread out monthly — the same logic as investing generally. Some plans also allow “superfunding” (contributing several years’ worth of gift-tax-exclusion amounts at once) for those who can afford it. This is exactly the kind of move a grandparent-owned account is now free to make more aggressively, since the account’s timing relative to a student’s FAFSA years no longer carries the aid-eligibility risk it once did.

Run your own numbers, right here

YOU ENTER a monthly contribution and years until college. IT TELLS YOU the projected 529 balance versus a taxable account — a comparison that has nothing to do with who owns the account, since Eleanor’s grandparent-owned 529 grows under the exact same tax rules as a parent-owned one.

Frequently asked questions

What happens to unused 529 money?

Non-qualified withdrawals are taxed on the growth portion and typically incur a penalty on that portion too — but redirecting to another beneficiary or the new Roth rollover option usually avoids this entirely.

Should I use a 529 or just save in a brokerage account?

If the money is genuinely earmarked for education, the tax-free growth usually wins. If there’s real uncertainty about whether it’ll be used for education, the flexibility of a taxable account has its own value.

Does the new FAFSA rule mean grandparents should front-load withdrawals now?

It removes the specific reason to delay withdrawals until senior year, but the right timing still depends on the family’s own aid situation, tax picture, and how the funds are needed year to year. What it does mean is that “wait until senior year to avoid hurting financial aid” is no longer a valid reason on its own — that specific risk is gone starting with the 2024-25 FAFSA cycle.

How would a family even know if this rule applies to them?

The FAFSA form itself, and the Department of Education’s own guidance on studentaid.gov, spell out exactly what counts as reportable income under the current rules for the award year being filed. Since the form and its underlying formula have changed more than once in recent years, checking the current year’s instructions directly — rather than relying on what a friend, article, or relative said a few years back — is the only way to know which version of the rule actually applies to a specific FAFSA filing.

Eleanor’s three years of careful restraint cost her granddaughter nothing in the end — the funds were still there for senior year, just later than they needed to be. But the same caution, applied by a family that actually needed the money sooner to cover a gap between financial aid and the bill in front of them, would have meant real dollars sitting unused in an account while a loan or a missed payment did the work that early 529 withdrawals could have handled instead. A rule change that quietly removes a risk is easy to miss precisely because nothing bad happens if you keep behaving as though the old risk is still there — it just costs you the flexibility the new rule was specifically designed to give back, quietly, one unnecessarily delayed withdrawal at a time.

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Source: U.S. Department of Education, FAFSA Simplification Act changes to reported untaxed income, effective the 2024-25 award year, at studentaid.gov.

Disclaimer: This article is for general information only and is not financial or tax advice. “The Ortega family” and “Eleanor Voss” are composite characters with invented finances, not real people. Consult a qualified advisor before making education-savings decisions.