College costs continue to rise, and the earlier families start planning, the more options they have. Understanding the key tools available — and how they interact with financial aid and taxes — is the foundation of a smart college savings strategy.

529 College Savings Plans

The 529 plan is the workhorse of college savings. Contributions grow tax-free, and withdrawals are tax-free when used for qualified education expenses (tuition, fees, room and board, books, and more). North Carolina’s plan is the NC 529, administered through CFNC.

  • Contribution limits: No annual limit, but contributions are subject to gift tax rules. Front-loading up to five years of annual gift tax exclusions ($18,000/year per person in 2025) in a single year is permitted.
  • FAFSA treatment: A parent-owned 529 is treated as a parent asset on the FAFSA, which has a relatively small impact on financial aid eligibility. A grandparent-owned 529 no longer affects the student’s aid calculation starting with the 2024-25 FAFSA.
  • Rollover to Roth IRA: Under SECURE 2.0, up to $35,000 of unused 529 funds can be rolled over to a Roth IRA for the account beneficiary (with conditions).

ABLE Accounts for Students With Disabilities

For students with disabilities, an ABLE account can complement a 529. ABLE funds can cover disability-related qualified expenses including education, assistive technology, and housing. Starting January 1, 2026, the ABLE Age Adjustment Act extends eligibility to individuals whose disability onset occurred before age 46.

Coverdell Education Savings Accounts (ESAs)

Coverdell ESAs allow up to $2,000 per year per beneficiary, with tax-free growth for K–12 and college expenses. Income limits apply — contributions phase out for single filers above $95,000 MAGI.

Financial Aid Basics

The FAFSA determines eligibility for federal grants, loans, and work-study. Filing early (the FAFSA opens October 1 for the following academic year) maximizes aid opportunities. The Expected Family Contribution (EFC) — now called the Student Aid Index (SAI) — determines your family’s expected contribution.

The best college savings strategy is the one that fits your timeline, tax situation, and family structure. For families also managing special needs planning, coordinating 529 and ABLE accounts requires careful attention to benefit eligibility rules.