Bitcoin Beats 529 Plans? Crypto Parents Rethink College Savings

Despite Bitcoin’s notorious volatility, some parents are looking past the risks and choosing to invest in cryptocurrency instead of traditional 529 college savings plans. Their hope? Higher returns that could outpace conventional savings options, even if it means navigating the unpredictable crypto market.

According to Bloomberg, a growing number of families are turning to Bitcoin as a hedge against inflation, which worsened in December as consumer prices rose 2.6% compared to the previous year—up from 2.4% in November. These parents believe Bitcoin’s long-term growth potential could outperform traditional savings vehicles like the 529 plan.

Proponents argue that Bitcoin’s deflationary nature makes it an attractive alternative to state-sponsored 529 plans. While 529 plans offer tax advantages for educational expenses, they come with significant limitations. Funds must be used strictly for school-related costs like tuition, books, and room and board. If a student decides to use the money for other purposes—such as starting a business or traveling—withdrawals incur a 10% penalty plus taxes.

Additionally, 529 plan assets can reduce financial aid eligibility, particularly if owned by grandparents. State-specific rules and high fees further complicate matters, though these plans remain a popular choice for college savings.

CryptoCoinToss, a blog exploring cryptocurrency investing, echoes this sentiment, highlighting Bitcoin’s potential as a viable savings alternative. However, using crypto for college savings isn’t without its challenges. Bitcoin and other cryptocurrencies are considered assets on FAFSA forms, meaning they must be reported and could impact financial aid eligibility. If sold for a profit, the gains are included in adjusted gross income, potentially reducing aid.

While only a handful of U.S. schools, such as King’s College (NY) and Wharton (UPenn), accept Bitcoin for tuition, several international institutions do. However, student loan payments cannot be made directly with Bitcoin, requiring holders to sell their crypto first—a process that comes with tax implications.

Currently, there’s no way to directly include cryptocurrency in a 529 plan. However, changes to 529 rules under the Tax Cuts and Jobs Act of 2017 expanded their use to cover K-12 private school tuition, allowing up to $10,000 per year to be used for qualifying expenses. This raises the question: Could Bitcoin eventually find its way into 529 plans?

With former President Donald Trump positioning himself as a pro-crypto figure, some wonder if he might push for changes that integrate Bitcoin into 529 plans. For now, the idea remains speculative, but it underscores the evolving landscape of college savings and the growing influence of cryptocurrency.

As parents weigh the risks and rewards, one thing is clear: the debate over Bitcoin versus 529 plans reflects a broader shift in how families think about saving for the future. Whether crypto will become a mainstream option for college savings remains to be seen, but its appeal as a high-potential asset is undeniable.