What Most Parents Miss About 529 Plans
Excerpt from The Boston Family Study
When my daughter was born, I—like most parents—assumed a 529 plan was the "smart" way to save for college. But over eighteen months of research, I began to question that assumption.
I spent time in 146 conversations with families, private bankers, and family offices across Boston, New York, and Switzerland. With colleagues at Harvard and MIT, I studied what discerning families have quietly done for generations—and why families with similar circumstances often take such different financial paths.
What I discovered was surprising: the strategies America's wealthiest families use for education funding look very different from what most of us are told to do.
What follows is equally relevant for parents who already have a 529 and want to strengthen it with a more flexible structure, as well as for those still deciding what approach makes the most sense for their family.
1. 529 Plans can reduce your child’s financial aid.
Money in a 529 plan can count directly against need-based financial aid. Families who save responsibly can find themselves penalized, while assets like retirement accounts and home equity are ignored. The system quietly discourages middle- and upper-middle-class families from saving in their child’s name.
2. The money is restricted for 18 years and only for education.
529s are built for one thing—qualified education expenses—and little else. If your child earns a scholarship, takes a gap year, or pursues a nontraditional path, you can’t redirect the funds without taxes and penalties. It’s a rigid silo that assumes every child’s future looks the same.
3. You’re doubling down on market exposure.
Roughly 90% of 529 assets are invested in stock or bond funds. That means your college savings rise and fall with Wall Street’s volatility— alongside your 401(k), brokerage, and home equity. A downturn in your child’s junior or senior year can erase years of disciplined saving similar to what happened in 2008.
4. Fees quietly devour returns.
Most parents never notice how much they’re paying. Direct-sold plans charge 0.3–0.8%, while advisor-sold versions can exceed 2% plus front-end loads. Over 18 years, that “small” difference compounds into significant amounts—money that never reaches your child’s education. And because each state manages its own plan, families face a maze of 49 competing systems, each promoting its own providers and tax rules. It’s the illusion of choice masking a structure optimized for intermediaries.
5. The system rewards institutions, not families.
Behind the friendly brochures and state logos lies a powerful revenue machine. States outsource plan management to Wall Street firms, collect fees on assets, and promote their plans as “public service.” Brokers earn commissions on the same accounts they recommend. Fund companies collect stable, long-term inflows with minimal redemption risk. The result? A system that markets “simplicity” while quietly transferring wealth upward—one automatic contribution at a time. This pattern isn’t unique to 529s. The same dynamic is now unfolding across the retirement landscape.
6. The next frontier: your 401(k).
In 2025, the U.S. issued an executive order titled “Democratizing Access to Alternative Assets for 401(k) Investors.” The language sounded empowering—“broader access,” “alternative assets,” “private markets.” In reality, it opens the door for the same financial giants who manage 529s to route trillions in retirement savings into illiquid private funds—credit, real estate, infrastructure—products engineered for fee stability, not investor flexibility. The trend mirrors what’s happening in education savings: more complexity, more intermediation, and less transparency. Retail investors are told they’re gaining “access” to private markets; in practice, they’re absorbing new forms of risk while institutions capture decades of fee income.
The Bigger Picture
From 529s to 401(k)s, the story is the same: families are sold products that sound empowering but ultimately consolidate capital and control in the hands of a few financial institutions. 529s reward compliance, not creativity. They work for those content to fund tuition and stop there. But for families building multi-generational wealth—education, first homes, businesses, or enduring family capital—there are structures far more powerful than the ones sold on glossy brochures.
A Different Approach
Our research uncovered a pattern among enduring families and long-established private banks: they build structures, not products, and have been doing so for the last 200 years.
Systems designed to:
compound privately and steadily,
remain accessible for any purpose—education, a first home, a business, or inheritance,
stay insulated from market cycles, and
pass seamlessly between generations, with control and discretion intact.