What If Your College Fund Is Actually Hurting Your Child’s Future?
For years, the 529 college savings plan has been hailed as the “smart” way to save for your child’s future. Financial advisors, online influencers, and even your local bank love to pitch it as the ultimate tax-advantaged investment to cover education expenses.
But what if I told you that the 529 plan might be doing more harm than good?
In fact, after nearly two decades of helping families become financially independent, I can confidently say: 529 plans are one of the most overrated, inflexible, and risky vehicles for building wealth for your children.
Let’s talk about why.
The Viral Post That Sparked This Conversation
A recent viral post on social media claimed this:
“Invest $1,000 in a 529 when your child is born and contribute $100/month. By age 18, you’ll have ~$75,000. Roll it into a Roth IRA and by age 50, they’ll have $2.6 million tax-free.”
Sounds amazing, right?
But dig just one layer deeper, and the math and logic begins to fall apart. I broke this all down on a recent episode of the Money Ripples Podcast, but let’s unpack it here.
Let’s Break Down the Numbers
📌 Initial Investment: $1,000
📌 Monthly Contributions: $100 for 18 years
📌 Claimed Return: 11.5% annually
📌 Outcome by Age 18: $75,000
📌 Projected Growth to Age 50: $2.6 million (tax-free)
Here’s where the problems start:
- Unrealistic Return Assumption: 11.5%? That’s well above the historical average return of the S&P 500, which is closer to 8.4% and that’s before inflation.
- Inflation Wipes Out Buying Power: With just 4% inflation (and let’s be real, it’s higher), your $75K in 18 years only buys what $36K does today.
- Market Volatility: What if the market crashes the year your kid enters college (like 2022)? That $75K might drop to $55K overnight.
- Changing Rules: Who’s to say Roth IRA rollover rules will still exist 20–30 years from now? Congress can and does change the game mid-play.
And we haven’t even touched on the biggest problem yet…
529 Plans Lock Up Your Money
With a 529 plan, your money is in prison.
If your child gets a scholarship, decides to skip college, starts a business, or takes a gap decade to travel the world you’re penalized.
That’s right: use the funds for anything not qualified, and you’ll face a 10% penalty and income tax on the earnings. Even if your intentions were good, the IRS isn’t forgiving.
Flexibility? None.
Control? Gone.
Predictability? Only if you own a crystal ball.
Why I Ditched the 529 Plan Completely
As a father of eight, I’ve looked at this every which way. And I made a firm decision: I don’t use 529 plans for my kids. Period.
Instead, I use a max-funded whole life insurance policy (also known as infinite banking or a freedom fund).
Here’s why:
✅ Full Control
I own the policy. Not the government. Not the bank. Not even my kids.
✅ Use for Anything
College? Sure. First home? Definitely. Wedding? New business? Yes to all. It’s my call.
✅ Predictable Growth
Right now, my policies are growing at 6%+ tax-free, and they’re guaranteed. That’s not a pie-in-the-sky average it’s real.
✅ No Penalties or Age Restrictions
Access the cash whenever I want. No 59½ rules. No Roth rollover limits. No surprises.
✅ Legal Protection
In many states, life insurance is protected from lawsuits and creditors. Your 529 plan? Not so much.
The Real Goal Isn’t College It’s Freedom
Listen, I’m not anti-education. But I am against rigid financial vehicles that only serve one narrow purpose while ignoring the bigger picture.
What if your child doesn’t go to college?
What if they want to build a business instead?
What if they simply don’t need your college fund because they win scholarships, grants, or choose a different path?
Shouldn’t your money be ready to serve them, no matter the direction?
That’s why I believe so strongly in creating flexible, private wealth strategies not ones that lock you in and limit your choices.
Is the 529 Plan Really a Trap?
I’ll say it again: It’s a trap.
Not because it’s evil. But because it’s outdated, rigid, and overhyped. It doesn’t fit today’s world or today’s economy.
Your money should be a tool of freedom not a cage built on hope, restrictions, and fine print.
What Should You Do Instead?
Start by exploring options that:
- Grow tax-free and come out tax-free
- Let you stay in control
- Aren’t limited to “college-only” expenses
- Can serve any goal education, business, home, or retirement
Final Thought
You don’t need to follow the crowd.
You don’t need to pour thousands into a plan that may not serve your kids the way you hope. Instead, get educated, get flexible, and take back control of your financial future.
Let’s build a life of freedom, not frustration.