I agree it is good to think about it early! The 529 still can be better than general taxable savings because of a tax deduction and then tax-free growth. The problem is limited investment options. However, the Coverdell has more freedom of investment, so I’m doing that. Depending on the college, faculty or even staff have their kids go at reduced or free tuition, which could be an option for some people. That is a creative idea to do direct work while kids are in college. If one does have significant savings by then (including retirement savings, because as you point out the penalty for withdrawal is not that large), one could even take off time from paid work. This is facilitated by being able to take out an interest free loan on the part one does not have to pay right away while the kids are in college. Or if one is doing direct work while kids are in college, one could just continue the direct work afterwards. Since parents are expected to pay 5% of taxable assets per year when in college, I believe that means one would need to pay about 30% over six years. As you point out, there is also uncertainty that it would even be required (like if MOOCs take over). But you can still think of this (and the interest free loan) as an additional reason other than avoiding taxes to donate more money now instead of accumulating it in a taxable account. (Disclaimer: I am not a financial advisor nor a tax professional.)
I agree it is good to think about it early! The 529 still can be better than general taxable savings because of a tax deduction and then tax-free growth. The problem is limited investment options. However, the Coverdell has more freedom of investment, so I’m doing that. Depending on the college, faculty or even staff have their kids go at reduced or free tuition, which could be an option for some people. That is a creative idea to do direct work while kids are in college. If one does have significant savings by then (including retirement savings, because as you point out the penalty for withdrawal is not that large), one could even take off time from paid work. This is facilitated by being able to take out an interest free loan on the part one does not have to pay right away while the kids are in college. Or if one is doing direct work while kids are in college, one could just continue the direct work afterwards. Since parents are expected to pay 5% of taxable assets per year when in college, I believe that means one would need to pay about 30% over six years. As you point out, there is also uncertainty that it would even be required (like if MOOCs take over). But you can still think of this (and the interest free loan) as an additional reason other than avoiding taxes to donate more money now instead of accumulating it in a taxable account. (Disclaimer: I am not a financial advisor nor a tax professional.)