How High-Net-Worth Families Pay for College

For many families, welcoming a new child or grandchild brings the future cost of higher education into focus. Even though high-net-worth families can typically afford to write a check to pay for tuition, a more thoughtful approach reframes it as an opportunity to integrate the planned expenditure with their larger financial strategy.

In addition to covering a significant cost, education planning for high-net-worth families can also:

• Teach the next generation financial values and responsibility.

• Preserve control over how and when funds are used.

• Support broader estate, tax, and legacy planning goals by integrating education funding into gifting strategies, trust structures, and multigenerational wealth transfer plans.

As Benjamin Franklin said, “An investment in knowledge pays the best interest.” For high-net-worth families, the question becomes: What’s the most effective way to make this investment? In this Insight, we’ll examine a few options that, when leveraged appropriately, can yield exceptional returns.

Tax-advantaged 529 plans: The foundation of most savings strategies 

In total, 529 plan savings have now surpassed $500 billion nationally, and they’re popular with families of means for good reason. Funds saved and invested in these plans grow tax-free and, if used for qualified expenses, can be withdrawn tax-free. Qualified expenses can be used to cover tuition, room and board, books, and other education-related costs.

In most states, up to $10,000 per year from a 529 plan can be used to pay for private elementary, middle, and high school tuition. Funds can also be used for qualified expenses at graduate and professional schools, including medical and law programs. Additionally, some states offer tax deductions or credits for contributions, providing another layer of potential benefit.

Gifts made to 529 plans qualify for the annual exclusion, up to $19,000 per beneficiary in 2025 (and 2026). Parents or grandparents can choose to “superfund” a 529 plan, contributing up to five years’ worth of annual exclusion gifts in a single year. That means contributing up to $190,000 per child per couple, without triggering gift taxes.  

Superfunding, sometimes referred to as front-loading, requires filing a gift tax return, and no additional exclusion gifts can be made to the same beneficiary during that period. Because of the complexity, it’s wise to consult with your financial advisor or CPA to ensure proper coordination with your broader gifting strategy.

Advanced planning tip: Develop a financial plan that avoids overfunding. Unused funds are subject to a 10% penalty and taxes on the earnings. With that said, there are options for leftover funds that remain in the 529, or if circumstances change. For example, if the beneficiary chooses an alternative path or a scholarship offsets the costs, the account owner can change beneficiaries or, under the SECURE Act 2.0, unused 529 funds can be used to establish a Roth IRA for the beneficiary (lifetime limit of $35,000).

Irrevocable trusts: Creating a family legacy

A 529 plan is well-suited for most families, but it may not be the best fit for families of means with more complex financial needs. Depending on your goals, irrevocable trusts can provide more flexibility, especially when there’s a greater emphasis on multigenerational wealth transfer and protection. Trusts can help fund education, but they can also be used to provide other types of support, such as covering healthcare costs, making a down payment on a home, or serving as seed money for starting a business.

Key benefits of irrevocable trusts:

• Assets held in trust are protected from potential future ex-spouses, creditors, and lawsuits because they are not considered to be owned by the beneficiary.

• They work seamlessly with broader estate and wealth transfer strategies, even 529 plans.

• Trustees or co-trustees can ensure funds are used as intended, and since distributions aren’t limited to education, overfunding isn’t a concern.

Trusts, and sometimes custodial accounts, may also be preferred to 529 plans for accessing a broader array of investment options. For example, some state-sponsored plans may only offer more expensive mutual funds to access certain asset classes, such as large-cap U.S. equities, where a low-cost ETF option might be preferred.

Advanced planning tip: In some cases, naming a trust as the successor owner of a 529 plan or granting the trustee the authority to open a 529 plan under a trust can provide parents and grandparents with the peace of mind that their wishes will be carried out by their trustee. A good practice is to introduce the beneficiary to your financial advisor early on to establish a relationship and acquaint them with the trust’s purpose and functionality.

Custodial accounts

Custodial accounts are investment or cash accounts established for a child and managed by an adult, typically a parent, until the child reaches the age of majority. Two types are Uniform Transfers to Minors Act (UTMA) and Uniform Gifts to Minors Act (UGMA) accounts. Clients often ask about custodial accounts as an alternative to trusts because they’re less expensive to set up and simpler to administer. However, there are trade-offs. Because the funds in a custodial account become the child’s when they attain the age of majority (18 or 21, depending on the state), they don’t offer the same degree of control as a trust. For families that want to ensure funds are used for their intended purposes beyond the age of majority, a trust might be the better vehicle.

Insurance as a risk management strategy

High-net-worth families may need to plan for sudden reversals of their financial fortunes—especially if their objectives are at least somewhat contingent on one spouse’s earnings. What happens if the funding parent becomes disabled or passes away? Additionally, it’s not uncommon for people in fields such as private equity to have accumulated significant illiquid funds. While they may have millions of dollars on paper, they can’t access these funds to pay for living expenses or cover a big-ticket expense, such as college tuition.

Because savings alone may be insufficient to cover big-ticket expenses like education costs, it’s crucial to have a financial plan in place for the unexpected. Insurance policies can be immensely helpful for these purposes.

• Disability insurance can protect earning potential and help fund college expenses if a parent or guardian is unable to work.

• Term life insurance is a cost-effective way to ensure tuition expenses are covered if a parent passes away before sufficient savings have been accumulated. These policies provide essential income replacement during key earning years, bridging the gap until families have built enough assets to self-fund education and other long-term goals. Irrevocable life insurance trusts can hold larger permanent policies. Proceeds can be used to fund college expenses.

Other gifting strategies 

Direct tuition payments: Tuition paid directly to a qualified educational institution does not count against your annual gift tax exclusion or your lifetime exemption—the total amount you can transfer tax-free during your lifetime or at death before incurring federal gift or estate taxes.

Annual exclusion gifts: If tuition, room and board, and other qualified education costs are already covered by a 529 plan, you can still use your $19,000 annual gift exclusion (the amount permissible in both 2025 and 2026) to help cover additional expenses—like travel, technology, or other living costs—that fall outside of what 529s allow.

Other financial planning considerations

Merit-based scholarships: High-net-worth families might not be eligible for needs-based assistance, but it’s important not to overlook merit-based scholarships. Merit-based grants and scholarships are awarded based on strong academic performance, community involvement, and other relevant qualifications. They can cover the entire cost of a student’s tuition or just a portion. More than $100 billion in scholarships and grants are awarded each year. Nearly $100 million in scholarship money and $4 billion in student grants go unclaimed annually.

Tip: Although these scholarships are not based on financial need, students must complete a Free Application for Federal Student Aid (FAFSA) each year to remain eligible. The application requires less than a few hours of work to complete.

Education planning by life stage

Age/Life Stage	Recommended Actions
0–5	Open a 529 plan and develop a funding plan; superfund (if you can); consider a trust to align with estate plan.
6–12	Monitor growth and pace of gifting; use gifting strategies; begin early financial literacy.
13–17	Review college options and scholarship opportunities; finalize funding strategy, reallocating investments.
College years	Coordinate withdrawals; reinforce values and accountability.
Post-college	Urge financial management education, good budgeting practices, and funding employer retirement plans where available. Parents can continue to help with grad school or buying a home via planned gifts.

Be proactive about setting your children or grandchildren up for a financially efficient future that aligns with your overall financial plan. Contact your Cerity Partners advisor to explore an education funding strategy that supports your family’s long-term goals or request an introduction today.