I want to set aside $300k for my two small children – is a 529 the best way to go?​”Maximizing Your Children’s Future: Is a 529 Plan the Optimal Choice for Setting Aside $300k?” 

Personal FinanceCanva | Scopio and designer491 from Getty ImagesKristin HitchcockThis post may contain links from our sponsors and affiliates, and Flywheel Publishing may receive compensation for actions taken through them.24/7 Wall St. Key Takeaways:529 plans are extremely underutilized, in my opinion. However, I did come across a Reddit post recently that was all about 529 plans. The Redditor was sharing their dilemma about choosing between a passive 529 plan or a managed one for their children, ages 1 and 3. With a net worth of $2.5 million, a household income of $650,000, and some past financial missteps with advisors, they’re now weighing their options with a new advisor who’s recommending a $150,000 lump sum per child into a managed account. In their opinion, this is a bit extreme! There is plenty to unpack here for anyone considering a 529 plan for college savings. What to Know About 529 Plans529 plans are tax-advantaged investment accounts designed for education savings. Whether passive or managed, they offer benefits like tax-free growth and withdrawals for qualified expenses. But the decision between a passive state plan and a managed account hinges on several factors:Cost Efficiency: Passive 529 plans typically offer lower fees since they rely exclusively on index funds or ETFs. Managed accounts typically have higher fees to cover the active management cost and commissions. 
Advisor Incentives: The advisor, in this case, is upfront about the commission from J.P. Morgan’s managed plan, but it’s worth asking whether the added cost justifies the potential for higher returns or better service. In our experience, actively managed funds often underperform passive funds due to both higher fees and management problems. 
Tax Benefits: Some states offer tax deductions or credits for contributing to the state’s 529 plans. 
Overfunding Risks: The advisor’s recommendation of $150,000 lump sum per child is very high, even when you consider inflation. This could lock up significant capital and isn’t something I would recommend! If the child doesn’t use all the funds for education, the investor would face significant fees to use it for something else. Remember, non-qualified withdrawals are subject to income tax and a 10% penalty on earnings.
A Simple Plan for Most ParentsFor most families, a passive 529 plan offers the best balance of cost and growth potential. Here’s a sample strategy:Start small: There is little reason to put a $150,000 lump sum into a 529 account. Find something that matches your budget, and then set up a monthly contribution.
Leverage state tax benefits: If your state offers deductions or credits for using its plan, prioritize that option.
Reevaluate annually: All investments should be evaluated annually, including 529 accounts. 
A Note on Taxable InvestmentThe Redditor’s situation also highlights a trade-off many parents face: pulling funds from taxable accounts to fund 529s. While this can free