Money Rehab with Nicole Lapin - College Is Expensive. Here’s How Smart Parents Plan for It.

Episode Date: February 23, 2026

Four-year college isn’t the default anymore…  but saving for your kid’s future absolutely is. Today, Nicole breaks down the modern playbook for affording college whether your kid is a newborn, or if they’re applying to colleges now. This is your simple guide to 529 plans, custodial accounts, Coverdells, prepaid tuition plans, and the newest government-backed savings option making headlines. If you’ve ever wondered, “What happens to a 529 plan if my kid doesn’t go to college?” Nicole will teach you a smart move there, too. Check out Nicole’s financial literacy course The Money School  Find a Financial Advisor or Financial Coach from Nicole’s company Private Wealth Collective Watch video clips from the pod on Money Rehab’s Instagram and Nicole Lapin’s Instagram Here’s what Nicole covers today: 00:00 Are You Ready for Some Money Rehab? 01:11 Where To Start If You Have a Newborn 01:28 Everything You Need to Know About 529s 04:44 Where To Start If Your Kid Is in Grade School 05:42 The Pros and Cons of Custodial Accounts 08:17 Where to Start if Your Kid Is in High School 10:32 Tip You Can Take Straight to the Bank All investing involves risk, including loss of principal. This episode is for informational purposes only and does not constitute financial, investment, or legal advice. Always consult a licensed professional before making financial decisions.

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Whether your kid just took their first steps or if they're a high school senior weighing their college options, there are always smart money moves you can make to help them succeed. My daughter just turned one. So this is a whole new world for me right now. I've certainly heard of college savings plans forever, but I needed a new rulebook because honestly, education looks a lot different than it used to. A traditional four-year university still on the table,

but more and more young people are choosing trade schools, community college, apprenticeships, and sometimes skipping formal education altogether in favor of entrepreneurship. That means how we save for their future needs to reflect those choices. It is definitely not a one-size-fits-all model anymore. But the good news is we have options. So today I'm going to walk you through exactly what I recommend, not just as a money expert, but as a new mom myself,

who's navigating all of this in real time. Let's start at the very beginning. Pregnancy or those wild sleep-deprived newborn days. If that's you right now, first of all, I feel you. My daughter just went through sleep training. So I am 90% caffeine right now. I'm barely functioning. But anyways, if that is you too, you might be wondering, what is the first financial step I should

take here? I think the answer is open a 529 plan. It is not flashy. It's not new, but it works. A 529 is a tax advantaged investment account specifically designed for education expenses like tuition, books, housing, even laptops. The money grows tax free if you use it for qualifying education expenses. You don't pay any tax on the withdrawal.

That is a really, really big deal. It is basically like getting a discount on everything from. pre-k supplies to PhDs. And here's a pro tip. You can actually open a 529 before your kid is even born. You just open it in your name. And once the baby arrives, you can transfer it to them as the beneficiary. That way you start growing that money right away. And with kids, just like yourself, time is your best friend when it comes to investing. Let's say you just put $250 a month into a 529 from birth. By the time your kid is 18, that could grow to around 138K, assuming a historical average rate of return for the stock market. That is the power of compounding. And some states make this even sweeter.

Colorado and Kansas, for example, will match your contributions up to a certain amount if you qualify. And in Maine, they will give you a $500 jumpstart just for opening the account through the Alphan grant program. We love free money. So how much should you contribute? Well, you know that when it comes to Roth IRAs, tax advantage retirement accounts, there is a contribution limit. 529s are a lot more flexible. There is no federal contribution cap, but there are massive. maximum aggregate limits that vary by state. These limits are super, super high, though, like somewhere between $200,000 and $600K per beneficiary. However, the IRS does think of 529 contributions as gifts.

So if you contribute more than 19K in 2026, you might trigger the federal gift tax. If you're dealing with gift tax limitations and you're already doing really well, but if you have this kind of cash and you want a loophole anyway, there is one. The IRS allows you to super fund a 529 by front-loading five years worth of contributions up to $95,000 per beneficiary without triggering gift taxes as long as you don't contribute again during those five years. Bottom line, 529 plans have a lot of flexibility, but they are not a free-for-all. You still need to plan around tax rules and state limits. And just a quick reminder, don't try to get sneaky or cute here. If you use gains from a 529 for expenses other than education, you will probably have to pay penalties. There are some exceptions, but in most cases, the gains on withdrawals will be subject to federal income tax and a 10% penalty.

Okay, so the account is now open. Now what? Keep building it. Don't feel like it has to all come from your pocket. Most 529 plans offer a feature called a U-GIF link. It is basically like a baby registry, but instead of thousands of stuffed animals or baby shoes that your kids will grow out of in two seconds, friends and family can contribute directly to your kids' education. For my daughter's first birthday and the holidays, trust me, I sent that link out to everyone who was planning on giving her a gift. She said all she wanted for her birthday or the holidays was 529 contribution anyway.

There are even credit card rewards programs that support 529 contributions. Cards from Fidelity or You Promise, for example, let you direct your cashback rewards straight to your 529. So you are literally getting free money while you're spending what you were going to spend anyway. Now, let's fast forward. Your kid is in elementary school. school or middle school. Maybe you've opened a 529, maybe not. Is it too late? Definitely not. And now there are additional tools you can use, one of which is the Coverdell Education Savings account or ESA. This is like a smaller cousin of the 529, but with a few differences. You can only contribute

up to 2K per year per kid and there are some income limitations. But the big benefit is flexibility. Cover Dell accounts can be used for K through 12 expenses, not just for college. So if you're paying for private school tuition, if you need to buy a laptop for school or you want to cover tutoring, those all qualify. You can open a CoverDell account through your bank or your brokerage the same way that you'd open up an IRA. And then you invest that money in stocks, bonds, or mutual funds. And just like a 529, the growth is tax free if you use it for qualified education expenses. So if you're a family spending money now on education, CoverDell can be a great way to stretch your dollars further. Another option that often gets overlooked is a

custodial accounts, specifically UGMA and Utma accounts. I know it sounds weird and more alphabet soup. Those stand for uniform gifts to minors act and the uniform transfers to minors act and they're not limited to education expenses. Basically, you open an account for your kid and you as the custodian manage the assets until your kid becomes a legal adult, which is either 18 or 21 depending on your state. You can contribute as much as you want, although gift tax rules still apply if that applies to you. And the money can be used for anything that benefits your kid, not just school. So a car, a business, even a down payment on their first home. Now, the downside here. Once your kid hits the age of majority, the account is theirs. No strings at that. That means they can decide to spend that money on a spontaneous gap year in Bali with their boyfriend or girlfriend instead of on books or tuition. That is totally legal, even if it's not your top choice. Plus, custodial accounts can reduce a student's eligibility for financial aid more than 529s or coverdells since the assets are taxed. technically considered the child. But the upside here is flexibility. If your kid's future is

very much TBD and you want a lot of options, uGMAs and utmas can be powerful pieces of the puzzle. And we have what could be the newest kid on the block, the Trump savings account. These accounts are available for U.S. citizen children born between January 1st, 2025 and December 31st, 2028. And the big headline is that eligible kids get a free $1,000 starter contribution from the federal government. Family with kids under 18 who were born outside that window can still open up the account, but they're not going to get that $1,000 gift. My daughter missed this deadline by a couple of weeks, but that's just how my 2025 went. Anyway, anyone including parents, employers, and even nonprofits can contribute up to a total of $5,000 per year,

with employer contributions capped at $2,500 and counting toward that annual limit. The money must be invested in low fee index funds that track the S&P 500 and can, can't be withdrawn until the kid turns 18 unless it's rolled over or transferred under special circumstances. While the upfront gift is a no-brainer, it's awesome. Free money is free money. This kind of account isn't something that should replace a 529 plan. It should just complement it.

Trump savings accounts lack the robust tax advantages and flexibility of 529 plans or custodial brokerage accounts and come with more strings attached. So think of it as a nice bonus, not a replace. for your main savings plan. Let's fast forward yet again. Your kid is now in high school. College is coming fast and maybe you're thinking, dang it, I should have started this sooner.

Well, first, please don't beat yourself up. Most people do not have the luxury to start saving for college at birth. Today is as good a day as any to get started and it is never too late to start. One often overlooked tool at this stage is a prepaid tuition plan. Some states like Florida, Texas and Virginia allow you to lock in today's tuition prices at public universities. So think of it as buying college credits at 2025 prices, even if your kid doesn't go to college for another five years. With tuition rising faster than inflation, about 4 to 5 percent annually on average, this can lead to major, major savings.

Don't worry, you don't have to pay it all up front. Most states let you make monthly payments, kind of like a layaway plan for college. Now, if your kid ends up going to school out of state or doesn't use all of that money, a lot of plans will allow you to transfer the value or even give you a refund. Finally, let's say your kid is already in college. Game over? Absolutely not. Your 529 is still your friend.

Most people know that it can be used for tuition, but fewer people realize that it can also cover room and board, as long as your child is enrolled at least half time, required books, a computer, and even internet access if it's needed for school. But here's where this gets really interesting. What happens after college if there's leftover money? Well, for years, that was a big drawback of 529 plans. The dreaded, what if they don't,

go to college or what if we saved too much and it was wasted questions. Now you can roll over up to $35,000 from a $529 into a Roth IRA for your kid as long as the account has been open for at least 15 years. That means your college savings can seamlessly turn into retirement savings. A jumpstart like that could be worth hundreds of thousands of dollars by the time your kid is 60. And remember, education doesn't have to mean a four-year college. 529s can be used for trade schools, a apprenticeships and even some international institutions. The world is changing. And the way we save should change too. No matter where you are in this journey or how much you can realistically save, what really matters is just getting started. Even small, consistent contributions can grow into

something meaningful. Trust me, the best education plan is the one you actually use. For today's tip, you can take straight to the bank. Look into opening a 529 plan in a state that offers better benefits for you, even if you don't live in that state. Yeah, you're not locked into your home state. plan. While some states will offer tax deductions or credits for contributing to their own 529 plans, others don't, which means you are free to shop around. Plans like those from Utah, Ohio, and Nevada consistently get top ratings for low fees and strong investment options. So you should start by looking into your own state's plan because they might give you special perks as a resident, but please don't stop there. Treat it like any other investment account and do your homework.