top of page

How Much Money Should You Put in a 529 Plan For Your Kids?

529 plans often come up in discussions on our online communities for doctors as physicians look to save for college in a tax advantaged way. While there are contribution limits, there are many different ways to get substantial amounts of money into a 529 for years of tax free growth, including superfunding a 529 plan and having others contribute. As such, it’s important to set a goal for how much money you want to have in your child’s 529 so that you can budget and plan accordingly. As these numbers grow larger, the question arises - how much is too much to put into a 529? Obviously, there’s no one size fits all answer, but there are factors to consider that can help you determine a savings goal. Below, we cover how to determine how much to save, as well as tips for funding 529 plans, and what to do if you end up overfunding the account.


Disclosure/Disclaimer: Our content is for generalized educational purposes.  While we try to ensure it is accurate and updated, we cannot guarantee it. Rules/laws can change frequently.  We are not formal financial, legal, or tax professionals and do not provide individualized advice specific to your situation. You should consult these as appropriate and/or do your own due diligence before making decisions based on this page. To learn more, visit our disclaimers and disclosures.


7 factors that determine how much physicians should save in a 529 plan for their child

Article Navigation


What is the purpose of funding a 529 plan?


529 plans are tax-advantaged ways to help save for educational expenses. While they were originally intended to be used toward college, the list of qualified expenses has grown considerably since 529 plans were introduced.


9 ways physicians can use 529 plan funds for their children

529 plans are a great way for physicians to save for their children’s future education. Contributions to 529 plans are made with after-tax dollars, but gains on contributions, as well as future distributions, are tax free if used for the qualified expenses listed above.


As a reminder, unlike some other accounts like healthcare savings accounts, 529 plans should not be utilized as a stealth retirement plan, as unlike HSAs, 529 plans are beneficiary accounts. You open them on behalf of someone in their name, typically for your child (or grandchild). While these accounts can be transferred to a different beneficiary, the funds are no longer your money once transferred into the account unless you designate yourself as the beneficiary (but then the money has to be used for an appropriate 529 use, or have the same withdrawal penalties).




What considerations determine how much money you need to put in a 529 plan?


Educational costs have skyrocketed in the past few decades. While there’s no crystal ball as to what your child will need, it’s important to try and forecast what educational expenses you expect to need for your child’s particular situation.


For retirement savings, there are some general guidelines, such as the 4% rule, to help set targets. There’s no similar general rule of thumb for determining how much you need to save in a 529 plan that applies across families, but there are certain factors to consider, including:  


  • How much of their college and other educational expenses you want to support: There is no requirement that says parents have to pay for their child’s education, even if you are in the financial situation to do so. You may decide you want to cover all their expenses, some of them, or allow them to take out student loans, the way that you may have.


  • Time horizon for needing the funds: The closer the beneficiary is to needing to use the funds, the less time for the savings in your 529 plan to grow tax free, so putting away money when the children are very young offers much more of a benefit than starting a 529 in high school. Additionally, if you’re using the funds for private elementary school, you’ll need funds sooner than for college, lessening the benefit for those funds as well.


  • Your financial situation and goals: Remember that we always recommend investing for your own retirement (pay yourself first) prior to setting aside money for your children’s college expenses. While your child will have access to loans, there is no guarantee that somebody else will help you financially if you need it. While it’s nice to do both early, if you are in a position where you need to choose between funding your 401k and your child’s 529, general financial guidance is to prioritize the 401k. You can always decide to help cashflow educational expenses semester by semester by the time your child is off to college if your financial situation improves later.


  • Scholarships and financial aid available: While many children in physician families don’t qualify for need-based financial aid, your state may offer incentives such as free community college or scholarship programs for in-state universities. The more money your child can get from other sources, the less they’ll need to cover through a 529. A university may also offer your child a scholarship, or they may apply and receive scholarships from other institutions. We cover scholarships and 529 plans below, but if your child is an athlete and you anticipate them getting a scholarship, you may want to back off on how much you’re putting into your 529.


  • School choice: If you wish to send your child to private school for their primary or secondary schooling, you’ll need to cover more costs than parents with children in public or charter schools. Likewise, school choice for higher education can make a huge difference in how much it will cost. Private and out-of-state schools typically charge a lot more than in-state and public schools.


  • The beneficiary’s career goals: As doctors are well aware, different careers have different requirements for higher education and training. A future doctor will likely need to cover a lot more educational expenses than a profession without a necessary graduate degree.


  • Other children or beneficiaries whose education you may want to help fund: If you know there are younger siblings or potential beneficiaries, you may not worry as much about overfunding the 529, since you can transfer the balance to them.


Some factors may even change between now and when your child is ready to use the funds, especially when it comes to their overall higher education goals.



How do you calculate how much money to save in a 529 plan?


While we can’t say with certainty how much you should save, we hope the following guidance can help you determine your specific goal.



Estimate the costs you’ll want to cover to determine how much you need to save


The first step is to get a rough estimate of what your child’s total educational needs will be, and where you anticipate your child attending college. You’ll want to consider the type of school, what current costs are and how inflation will affect it, and how many years of education you plan on using the 529 for.


Public in-state tuition, public out-of-state tuition, and private college tuition costs vary. In 2025, this ranges from an average of ~25k/year - ~65k a year. Additionally, there will be other fees such as room and board, books, and other supplies that you will need to factor in to annual costs.


You’ll also need to decide whether you want to use the funds to help pay for private high school or graduate school in addition to the typical use for undergraduate education.


Multiply what you think the cost of each year of education will be by the number of years you think your child will be needing it (if costs are different for high school than college, do that math separately). 


When applying inflation, many financial experts recommend using 5% as a rough estimate for annual inflation. 



Account for growth in the 529 plan when deciding how much needs to be contributed


Remember, you shouldn’t need to contribute the entire amount that you anticipate needing to the 529, as your contributions, if well invested, should grow over time. 


An investment calculator can help you determine, given your child’s age and your savings goal, how much you may want to target investing into the 529. A financial advisor can also help you build a custom plan based on your overall financial picture.



Different plans offer different investment options, so it’s worth spending time picking a plan that has lower fees and better investment options. You are not limited to only the options available by your state.


Learn more about the best states for 529 plans.



Remember that you don’t have to cover all expenses with the 529 plan


As we noted above, you may be able to cashflow some, if not all, of the expenses, as you go from ongoing cashflow from your annual income, so don’t feel pressured to cover all expenses with the 529 plan. 


For example, you may decide you just want to cover the base amount that you expect you will definitely need - for example for an in-state public school.  If your child decides to go to a more expensive school, you can always pay out of pocket for the balance, or have your child take out loans.  Alternatively, they may receive a scholarship to cover some of the funds.


This way, you lower the risk of overfunding your plan.  This can cause taxes and penalties, depending on options available in your situation.



You don’t need to max out a 529 plan just because you can (nor should you)


Unlike your retirement accounts, the general recommendation isn’t to find every way to put money into 529s as possible. While 529 plans do have a maximum contribution limit, it varies  significantly depending on which state sponsors the plan. Maximum contribution limits range anywhere from the mid-$200,000s to over $500,000.


This maximum contribution limit is in place to help ensure that 529 plans are used for the intended purchase of offering tax benefits for educational expenses, but they can often far exceed how much your child will need for their schooling.


In addition to maximum contribution limits, annual contributions are limited by gift tax rules, since the accounts are set up in the name of a beneficiary. The annual gifting limit is typically five figures per parent for each child, and you have the option to superfund a 529 plan as well. In some situations, you could max out the annual limit once and be set.


Note though, just because you can max out a 529 plan doesn’t mean you should. For many beneficiaries, $250,000 would more than cover all their higher education expenses. If you have $500,000 to help your child jumpstart their future, it may be better to save some of that elsewhere and offer to help them purchase their first home after they graduate, versus maxing out their 529. (Though be careful with gifting rules here too!)


And again, what you contribute isn’t the total balance of a 529 plan. Your contributions will be invested within the 529 plan and grow tax-free. If you make contributions early in a beneficiary’s life, a significant portion of their 529 plan could be growth on top of the contributions you made. Investing $18,000 annually for 5 years, for example, could become $115,000 with a 8% growth rate in just those five years alone, let alone any future growth.



Keep track of how your 529 is growing, and reassess your need to contribute periodically


Keep track of your managed 529 plan(s) and reassess periodically, especially as your child gets closer to college and has a more concrete idea of what they hope to do for a career. If your balances are getting high due to strong growth, you may elect to pause putting in more money. Similarly, if it becomes clear that your child’s career goals don’t involve getting that MD/JD/MBA combo you were envisioning for them, you may want to change your savings goals. Also remember that because of the high annual contribution limits, it’s possible to catch up later, even if you may lose some of the compounding growth early on.


5 steps to help physician parents determine how much money to put into a 529 plan for their kids


What happens if you overfund a 529?


Circumstances change, especially when forecasting for years (or decades) in the future. The beneficiary of the account may decide on a different career path than they originally planned on and opt out of extra education. The beneficiary may receive scholarships (maybe even a full ride). Or the stock market may have several good years, leaving you with higher returns than you expected.


Regardless of the reason, you might find yourself with money left in an overfunded 529 plan. There are a few options in this case:

  • You can transfer ownership of the account and its remaining balance to another beneficiary to use for their education

  • You can rollover up to $35,000 (lifetime limit) into a Roth IRA (restrictions apply).

  • You can use up to $10,000 (lifetime limit) of 529 funds for the purpose of student loan repayments.

  • If the beneficiary receives scholarships, you can withdraw the amount of the scholarships from the 529.


If you exhaust all tax-friendly options for an overfunded 529, there is always the option to withdraw the remaining funds, though you will be subject to regular income taxes and a 10% penalty, which can quickly erode the benefits gained from investing within the plan.



Conclusion


Helping support your child’s higher education aspirations is a wonderful way to set them up for their future, if you have the means and desire to do so. A 529 plan is one option specifically designed for college savings that provides tax benefits, while helping you plan for your child’s future. 529s should not be used for other savings goals, such as retirement, as they lose tax benefits and charge penalties when funds are distributed for non-qualified expenses. How much to save in a 529 is highly personal and depends on several factors including your goals as well as your child’s, how old they are, and school selection.


If you’re ready to open a 529 plan but need help determining how much to save, a financial planner can help you lay out a savings goal, and can also help adjust it in the future should circumstances change.



Additional college saving resources for physicians


Explore related PSG resources:


If you’re looking for strategies for saving for your retirement, explore:

bottom of page