529 plan advertisements are usually geared toward families with new babies since starting early is always the best time to begin. But, the reality is that many families get a late start on saving for college.
Parents who open a 529 plan when their child is a high school freshman or later can still take advantage of the federal (and sometimes state) tax benefits, even if college is just a few years away. Any college savings will reduce the child’s future student loan debt.
How 529 plans work
529 plans work similar to a Roth IRA. An individual makes contributions with after-tax dollars, which are invested in mutual funds, ETFs, or other diversified investments. The investments grow tax-deferred, and distributions are tax-free when used to pay for qualified higher education expenses. These include up to $20,000 a year in K-12 expenses per beneficiary, registered apprenticeship costs, up to $10,000 in student loan repayments, and qualified postsecondary credentialing expenses such as licensure and certification. That flexibility matters for a late starter, because it provides more options for you to enjoy the benefits of a 529 plan.
The sooner parents start saving in a 529 plan, the more time they have to take advantage of tax-free compounding. However, there are still benefits to investing in a 529 plan, even if the beneficiary is in middle school or high school.
Selecting appropriate 529 plan investments
When selecting a 529 plan investment portfolio, parents of older children may want limit their equity allocation to around 20% to 30%, if they want to benefit from market upside while minimizing their exposure. Equity allocation is the percentage invested in stocks and mutual stock funds. The rest of the portfolio can be invested in conservative investments with a lower risk of loss. These include fixed-income options, such as bonds, CDs, money market funds, and FDIC-insured investments.
With only a few years until college, families might not have enough time to recoup their losses if the stock market drops.
State income tax benefits function like a discount on tuition
Many states offer a state income tax deduction or tax credit for 529 plan contributions. For parents with a shorter time horizon, a state income tax benefit can operate like a discount on college tuition. In most states, taxpayers can contribute, immediately withdraw funds to pay for college, and still claim the state income tax benefit.
However, four states block this loophole. Michigan and Minnesota base their state income tax benefits on annual contributions net of distributions, so a withdrawal in the same year reduces the deductible amount dollar for dollar rather than triggering a holding period. Montana recaptures the state income tax deduction when withdrawals are made from an account that was opened within one year prior to the withdrawal. In Wisconsin, tax benefits are subject to recapture if funds are distributed within 365 days of the contribution.
Sometimes, there is a tradeoff between state tax breaks for an in-state 529 plan and lower fees for an out-of-state 529 plan. However, when the child enrolls in high school, the balance shifts to a preference that favors the state income tax benefit.
Boost college savings in the short-term
Families should consider saving one-third of total projected future college costs and covering the remaining two-thirds with current income and student loans. But, it can be difficult to save that much when a child is already 12 or 13 years old. Families who use a college savings calculator might get sticker shock when they realize how much they need to save in such a short time.
Instead, just save what you can. Every dollar you save is a dollar less you’ll have to borrow. Don’t let the high cost of a college education overwhelm you.
Families who have trouble saving at least one-third of total college costs may consider one of the following ways to boost their 529 plan savings:
- Apply for scholarships – Scholarships for middle school or high school students are sometimes awarded as 529 plan contributions, allowing students the added benefits of tax savings and compounding. Read our Complete Guide to Scholarships.
- Enlist the help of friends and family – Anyone can contribute to a child’s college savings plan. Many 529 plans have gifting platforms that make it easy for grandparents and family members to make a one-time or recurring electronic contribution. Backer is an app that allows you to link your 529 plan and easily receive gifts for college from family and friends.
- Ensure the child has skin in the game – Students can put a portion of their income from part-time and summer jobs into their 529 plan. In fact, 63% of high school students in a 2026 survey indicated they are doing their part by saving for college.
- Be realistic about financial fit. If you haven’t saved enough, your child might need to attend a less expensive college, such as an in-state public college. Public colleges can provide an excellent quality education at a much lower cost. On published tuition and fees alone, an in-state public four-year college runs roughly a quarter to a third of a private nonprofit’s price; once room and board are included the gap narrows, with the average in-state public total at about 42% of the average private figure for 2025-26.
