What Your Parents Wish They Knew When You Were 5 Years Old

By: Lorenzo Alfonso

Apr. 19, 2026

As a senior graduating in May, I see more students trapped in a world of financial debt after their four-year degree and beyond. What many don’t realize is that if their parents had taken the right steps when they were younger, these higher education expenses could have been much more tolerable. In this article, I want to explain what these options are, so you don’t make the same mistakes twice—whether for graduate school or for your own children in the future.

The Gold Standard: The 529 plan is the gold standard for saving for educational expenses. These accounts consist of after-tax dollars (at the federal level) and can be withdrawn tax-free for any qualifying educational expenses. Qualifying expenses include tuition, mandatory fees, textbooks, and room and board—provided it does not exceed the school’s official cost of attendance and you are enrolled at least half-time.

The great thing about this account is that you are not limited to just college. It can cover tuition for high school or professional certificates as well. Plus, in 2026, you can even use your 529 plan to repay up to $10,000 in student loans! For us here in Fort Collins, there is a bonus: Colorado offers a state tax deduction for contributions, which is a huge plus.

What if I don't use all my 529 plan?

A common worry is having "trapped" money, but the rules are very flexible. You can directly change the beneficiary's name to another family member; if one sibling gets a full ride, you can rename the account for another child. You can even name yourself if you decide to pursue a master’s degree later.

If that is not an option, as of 2026, you can roll over up to $35,000 into a Roth IRA. Just keep in mind the account must have been open for at least 15 years to qualify for this—which is exactly why starting when a child is five is so vital.

Invested for Success

The key is being invested correctly. According to NBER research, nearly 60% of 529 accounts are invested sub optimally due to high fees or a lack of "age-based" adjustments. A major tip: utilize "Age-Based Options" that automatically get more conservative as the student nears their freshman year to protect the principal from market swings.

UTMA/UGMA: The Flexible Alternative

These accounts operate similarly in that you can invest in products like stocks, bonds, and mutual funds. However, unlike the 529, a UTMA (Uniform Transfers to Minors Act) allows you to include physical property like real estate. While most states have moved toward the UTMA model for its flexibility, there is a catch: these are irrevocable gifts. Once you hit the "age of majority" (21 in Colorado), the money legally belongs to you—regardless of whether you spend it on tuition or a new car.

The Supporting Cast: Coverdell, HYSA, and Brokerage

While 529s and UTMAs are popular, there are other tools that provide unique advantages:

Coverdell ESA: Think of this as a "mini-529" with a $2,000 annual limit. Its superpower? You can invest in almost anything—individual stocks, ETFs, or specific bonds—giving you total control over the portfolio.

High-Yield Savings Account (HYSA): This is your short-term bucket. With 2026 rates around 4%, this is the best place to keep money you need for next semester’s rent or textbooks. It’s safe, liquid, and earns much more than a standard checking account.

Taxable Brokerage Accounts: This is for the ultimate "what if.” There are no tax perks for education, but there are also no rules. You can use this money for a house, a business, or a wedding. If you hold your investments for over a year, you’ll pay lower long-term capital gains tax rates.

The Bottom Line

There are so many ways to mitigate the burden of educational expenses. I encourage you to investigate these different accounts more deeply to fully understand your options, especially if you’re considering grad school in the future. Remember, time is your biggest advantage—the earlier you start, the more time you give your investments to compound.

DISCLAIMER: This is not financial advice, and Lorenzo Alfonso is not acting as a financial professional. Anything in this article should be reviewing further and should consulted with a tax or financial professional.