The College Planning Guide for High-Income and High-Net-Worth Families (2026)

Paying for college is a major expense for every family, including families with high incomes and large balance sheets. A higher income doesn't lower the price. It mostly rules out need-based aid, which makes planning more important, not less. The families who do well are the ones who decide early what they're paying for, pick the right accounts and avoid a few expensive mistakes with taxes and financial aid.

This guide covers how high-income and high-net-worth families can plan for college in 2026, with notes for Houston and Texas families where the rules differ. It's general education, not advice for your situation. Several of these rules changed in 2025 and 2026, so check the details before you act.

How much does college cost in 2026?

For the 2025–26 academic year, average published tuition and fees are $4,150 at public two-year colleges for in-district students, $11,950 at public four-year colleges for in-state students, $31,880 for out-of-state students at public four-year colleges and $45,000 at private nonprofit four-year colleges (College Board). Those are sticker prices before housing, food, books and travel, which can add $15,000 or more a year, and they don't reflect merit scholarships or institutional discounts.

The spread matters more than the average. A Texas resident at a public university might face a four-year cost under $120,000 all-in, while a private college can run $320,000 or more at today's prices. Prices also keep rising, so the longer your time horizon, the bigger the gap between what college costs today and what it will cost when your child enrolls.

How should you set college planning goals?

A plan with a clear target is easier to fund and easier to stick with. Three decisions drive everything else:

• Decide what you'll pay for. Some families cover everything. Others cover tuition and expect the student to handle books and living costs, or cover the cost of an in-state public university and let the student fund any difference. Deciding this early sets expectations with your child and gives you a number to save toward.
• Set a dollar target. Build it from the type of school you're planning for, the number of years, your assumed cost inflation and how much of the total you've chosen to cover. If you have more than one child, run the number for each.
• Decide how and where to save. Choose the accounts, then set a monthly or annual contribution that gets you to the target given your time horizon and expected returns. A financial planner or a college savings calculator can help with this step, and the number should be revisited every year or two as costs and your plans change.

Where should high-income families save for college?

High-income families have more options than most, because the accounts that phase out at higher incomes matter less and the accounts with no income limits matter more. Here's how the main choices compare.

529 plans

A 529 plan is a state-sponsored, tax-advantaged account for a named beneficiary's education. Contributions aren't deductible federally, earnings grow tax-free and withdrawals are tax-free when used for qualified education expenses. Nonqualified withdrawals owe income tax plus a 10% penalty, but only on the earnings portion (IRS Publication 970).

There are two types:

• Prepaid tuition plans let you buy future tuition at today's prices. Texas runs one, the Texas Tuition Promise Fund, which locks in undergraduate resident tuition and schoolwide required fees at Texas public colleges and universities. Enrollment runs from September 1 through February 28 each year, and newborns can be enrolled through July 31 (Texas Tuition Promise Fund). If your child attends a private or out-of-state school, the plan pays a transfer value instead, so it works best when you expect a Texas public university.
• Education savings plans are investment accounts offered by nearly every state. You can use any state's plan regardless of where you live. Contributions are invested in portfolios of stocks and bonds, often in age-based tracks that get more conservative as college approaches. Texas offers the direct-sold Texas College Savings Plan and the advisor-sold LoneStar 529 Plan (Texas Comptroller).

For high-income families, several features make the 529 the workhorse account:

• No income limits and no annual contribution limit. Each state caps total balances per beneficiary, with limits ranging from about $269,000 to more than $600,000 depending on the state (Saving for College). Texas's combined limit across all Texas 529 programs is $500,000 per beneficiary (LoneStar 529).
• Superfunding. Contributions are gifts, so they count against the $19,000 annual gift exclusion for 2026. A special election lets you treat one large contribution as if it were made evenly over five years, so you can put in up to $95,000 per beneficiary at once, or $190,000 as a married couple, without touching your lifetime exemption. You file Form 709 to make the election. Our year-end gifting guide walks through how that works alongside other gifts.
• Roth IRA rollovers for leftover money. Up to $35,000 over the beneficiary's lifetime can be rolled from a 529 into their Roth IRA, penalty-free and tax-free, if the account has been open at least 15 years. Each year's rollover is limited to that year's IRA contribution limit ($7,500 for 2026), the beneficiary needs earned income at least equal to the rollover, and contributions made in the last five years and their earnings aren't eligible (Fidelity).
• Flexible beneficiaries. You can change the beneficiary to another eligible family member without tax, and if the new beneficiary is in the same generation or older, there's no gift or generation-skipping transfer tax.
• Broader uses since 2025. The One Big Beautiful Bill Act expanded qualified expenses to include postsecondary credentialing programs, such as professional licenses and industry certifications, for distributions after July 4, 2025, and raised the annual K-12 limit from $10,000 to $20,000 per student starting in 2026 while expanding K-12 expenses to include curriculum materials, tutoring and test fees (Western CPE). Up to $10,000 can also go toward the beneficiary's student loans over their lifetime.

A note for Texas families: Texas has no state income tax, so there's no state deduction or credit for 529 contributions. That removes the usual reason to favor your home state's plan. Compare plans on investment options, fees and features, and choose the one that fits.

Coverdell education savings accounts

Coverdell ESAs work like 529s in tax treatment, with tax-free growth and tax-free withdrawals for qualified expenses, and they offer more investment flexibility, including individual stocks. Two features limit their usefulness for high-income families: contributions are capped at $2,000 per beneficiary per year, and the ability to contribute phases out between $95,000 and $110,000 of modified adjusted gross income for single filers and $190,000 to $220,000 for joint filers (IRS Publication 970).

The income test applies to whoever makes the contribution, not to the beneficiary, and there's no requirement that the contributor have earned income. That opens a simple workaround for high-income parents: gift your child $2,000 and have the child contribute it to their own Coverdell. The child is the contributor, the child's income is what's tested, and the gift falls well within the $19,000 annual exclusion. Grandparents or other relatives under the income limit can also contribute directly. Keep in mind the $2,000 cap is per beneficiary across all contributors, not per contributor, so coordinate who's funding the account each year. Coverdell balances can be rolled into a 529 for the same beneficiary, and the funds must generally be used by age 30.

UTMA and UGMA custodial accounts

Custodial accounts under the Uniform Transfers to Minors Act or Uniform Gifts to Minors Act are taxable investment accounts that a parent or guardian controls until the child reaches the age of majority, which is 21 in Texas for UTMA accounts. They're simple to open, have no contribution limits beyond gift tax rules and can be spent on anything that benefits the child, not just college.

The trade-offs are significant for wealthy families:

• The money becomes the child's. Once the gift is made it can't be taken back or redirected to a sibling, and the child gets full control at the age of majority, whatever their plans.
• The kiddie tax. For 2026 the first $1,350 of a child's unearned income is tax-free, the next $1,350 is taxed at the child's rate, and unearned income above $2,700 is taxed at the parents' marginal rate (Rev. Proc. 2025-32). For a family in the top bracket, a large custodial account offers little tax advantage.
• Financial aid. Custodial accounts are reported as the student's asset on the FAFSA and assessed at up to 20%, compared with a maximum of 5.64% for parent assets (Congressional Research Service). If aid is a possibility, that's a meaningful difference.

Roth IRAs and traditional IRAs

IRAs are retirement accounts first, but they have two features that come up in college planning:

• No early-withdrawal penalty for education. Distributions used for qualified higher education expenses for you, your spouse, children or grandchildren avoid the 10% additional tax that normally applies before age 59½ (IRS). Traditional IRA withdrawals are still taxed as ordinary income; Roth contributions come out tax-free, and Roth earnings are taxable if you're under 59½.
• Retirement accounts aren't reported on the FAFSA. Balances don't count as assets, but any withdrawal counts as income on the FAFSA two years later, which can reduce aid.

For 2026 the IRA contribution limit is $7,500, or $8,600 if you're 50 or older, and only the account owner can contribute (IRS). Those limits make IRAs a poor primary college account. Treat them as a backstop. Don't short your retirement to fund college; your child can borrow for school, but you can't borrow for retirement.

Taxable brokerage accounts

A regular investment account in a parent's name has no contribution limits, no restrictions on how the money is used and no penalties. The cost is tax drag: dividends and realized gains are taxed each year, and long-term gains are taxed when you sell, which matters more at higher brackets. Some families like a taxable account alongside a 529 to hold money that might not be needed for college, because it's flexible and the income is taxed at the parents' rate rather than the child's. A parent-owned taxable account is assessed at the parent rate on the FAFSA. The same account in the child's name is assessed at the higher student rate.

Trusts

Trusts are an estate planning tool first, but they can hold and direct education funds across generations. A trust can name multiple beneficiaries, set conditions on distributions, protect assets from a beneficiary's creditors or divorce, and keep money out of a young adult's direct control. Assets in a properly structured irrevocable trust can also be removed from your taxable estate.

Two cautions. First, trusts don't hide money from financial aid: trust assets and distributions must be reported on the FAFSA, whether the income is retained or paid out. Second, trusts taxed at the trust level hit the top 37% federal rate at a low income threshold, so the investment and distribution strategy needs tax planning. If college funding is the main goal, a 529 is simpler and more tax-efficient. If the goals are broader, a trust can own a 529 or fund education as one of several purposes.

Trump Accounts

If your child was born in 2025 or later, they may have a new Trump Account seeded by Treasury. Family contributions are capped at $5,000 a year and the earnings are taxed like a traditional IRA when withdrawn, so a 529 is usually the better home for your own college savings. Our guide to Trump Accounts covers what to claim and how it fits with a 529.

Should high-net-worth families apply for financial aid?

Yes, in most cases. There's no income or asset limit on submitting the Free Application for Federal Student Aid. The FAFSA produces a Student Aid Index (SAI), an estimate of what your family can contribute, and colleges compare it with their cost of attendance to award need-based aid. Even if your SAI exceeds the cost at every school on the list, there are reasons to file:

• Merit scholarships. Many colleges require a FAFSA on file before awarding merit-based aid that has nothing to do with need.
• Federal loans. The FAFSA is the only route to federal student loans, including unsubsidized Direct Loans that don't depend on need.
• Changed circumstances. A business downturn, a job loss or a second child in college at the same time can change the picture quickly. A FAFSA on file makes it easier to appeal.
• Expensive schools. At a private college costing $90,000 or more a year, families with incomes well into six figures sometimes qualify for institutional aid.

What the FAFSA does and doesn't count

The FAFSA uses tax information from two years earlier, so the 2026–27 form uses 2024 returns. Several assets aren't reported at all:

• Retirement accounts, including 401(k)s, IRAs and pensions
• Your primary home
• Personal possessions and life insurance cash value
• Starting with the 2026–27 FAFSA, the net worth of a family-owned business with 100 or fewer full-time employees, a family farm you live on and a family commercial fishing business (Federal Student Aid)

Parent assets that are reported, including 529 plans, brokerage accounts and bank accounts, are assessed at a maximum of 5.64%. Student assets, including UTMA accounts, are assessed at up to 20% (Congressional Research Service). Income is assessed at much higher rates than assets, which is why timing matters: large capital gains, Roth conversions or business distributions in the FAFSA base year can cost more in aid than the assets they create.

The CSS Profile, used by about 200 mostly private colleges, asks more questions than the FAFSA, including about home equity, business value and grandparent-owned accounts, so the answers can differ by school. Houston's Rice University is one of them: first-year domestic applicants must file both the FAFSA and the CSS Profile, and both parents must complete their own profile when they're divorced or separated (Rice Office of Financial Aid).

Student loans after July 1, 2026

The federal loan picture changed in 2026. For loans made on or after July 1, 2026, Parent PLUS loans are capped at $20,000 a year and $65,000 in total per dependent undergraduate, and Grad PLUS loans are no longer available to new graduate borrowers (Federal Student Aid). Dependent undergraduates can still borrow $5,500 to $7,500 a year in Direct Loans, with a $31,000 aggregate limit, so a family that expected to borrow the full gap at a private college now needs private loans, savings or a less expensive school.

Some families who could pay cash still have the student take federal Direct Loans. The reasoning is that modest borrowing gives the student a stake in the outcome and a credit history, and keeps parental cash available for other goals. That can make sense if the loan is small relative to the student's likely income and the family has a plan to pay it off. It makes less sense when the interest rate exceeds what you'd reasonably earn on the money elsewhere.

How can grandparents help pay for college?

Grandparents can use most of the same accounts, and two rule changes have made their position stronger.

Grandparent-owned 529 plans

A 529 owned by a grandparent isn't reported on the FAFSA as a parent or student asset, and since the 2024–25 FAFSA, distributions from it no longer count as untaxed income to the student (Congressional Research Service). That removed the main drawback of grandparent-owned accounts. Grandparents can superfund a 529 with the five-year election, moving up to $95,000 per grandchild ($190,000 for a couple) out of their taxable estate at once while keeping control of the account. Because the five-year election also covers the generation-skipping transfer tax annual exclusion, it works for grandchildren without using GST exemption.

Direct tuition payments

Tuition paid directly to the school is excluded from gift tax entirely, with no dollar limit, and doesn't use the annual exclusion or lifetime exemption (IRS). The exclusion covers tuition only, not housing, books or fees, and the payment must go to the institution, not the student or the parents. A grandparent can pay a semester's tuition directly and still give the grandchild $19,000 the same year. One caution: a direct tuition payment is generally treated as a resource by the college's financial aid office, so it can reduce need-based aid at schools where the student qualifies.

Gifts and loans to the family

• Cash gifts to parents or the student follow the normal gift tax rules: $19,000 per recipient in 2026 before any exemption is used, and the gift itself isn't reported on the FAFSA. Money the student holds at filing time is reported as a student asset, so timing matters.
• Intra-family loans aren't gifts if they're documented as loans, with a signed note, a repayment schedule and interest at least equal to the IRS applicable federal rate for the month the loan is made. A loan that's forgiven later becomes a gift in that year.

What should business owners know about college planning?

The FAFSA treats your business differently now

For the 2026–27 FAFSA, the net worth of a family-owned business with 100 or fewer full-time or full-time-equivalent employees is excluded from reported assets, reversing the 2024–25 rule that required it (Federal Student Aid). Business income still counts, and the CSS Profile colleges may still ask about business value, so the benefit depends on where your child applies.

Hiring your child

Putting your child on the payroll shifts income from your bracket to theirs, gives them the earned income a Roth IRA requires, and gives them money of their own to put toward a Coverdell or their college costs. The 2026 standard deduction is $16,100 for a single filer, so wages up to that amount owe no federal income tax (Rev. Proc. 2025-32). If your business is a sole proprietorship or a partnership owned only by the child's parents, wages paid to a child under 18 aren't subject to Social Security and Medicare taxes, and wages paid to a child under 21 aren't subject to federal unemployment tax (IRS). An S or C corporation doesn't get the payroll tax break, but the wages are still deductible to the business and taxable at the child's rate.

The work has to be real. Pay a reasonable wage for age-appropriate work, keep timesheets and job descriptions, run payroll, and follow federal and Texas child labor rules. The IRS looks closely at wages paid to young children for vague duties.

Letting your child claim the education credit

The American Opportunity Tax Credit is worth up to $2,500 a year for each of the first four years of college, but it phases out between $160,000 and $180,000 of modified adjusted gross income for joint filers ($80,000 to $90,000 for single filers) (IRS). If your income is above that range, one option is not to claim your child as a dependent so the student can claim the credit on their own return. The student must have enough tax liability to use it: a student under 24 whose earned income doesn't cover more than half their support can't take the refundable 40% portion (IRS Publication 970). A child with wages from the family business is more likely to have the tax to offset. Run the numbers both ways, because you give up the $2,200 child tax credit or $500 other-dependent credit when you don't claim the dependent.

How can you make college more affordable?

Regardless of income, the sticker price is negotiable in more ways than families expect.

• Get your child involved. Once a child has income from a part-time job, have them contribute to their own account. It teaches saving and investing, gives them a stake in the choice of school and can fund a Roth IRA that compounds for decades.
• Pursue merit scholarships. Need-based grants are off the table, but merit awards for academics, athletics, music, leadership and service aren't. Many are awarded automatically by colleges based on grades and test scores, and others require applications. Federal Student Aid has a free search tool, and your child's high school counselor will know local awards.
• Consider in-state public universities. Texas residents pay a fraction of what out-of-state students pay at the same schools, and Texas has strong flagship and regional universities. Establishing residency in another state for tuition purposes usually requires the family, not just the student, to move and meet that state's residency rules, so it's rarely practical.
• Use AP, IB and dual-credit courses. High scores and transferable credits can cut a semester or more off a degree. Check each college's credit policy, since they vary.
• Start at community college. Two years at a Texas community college followed by a transfer to a four-year university can save tens of thousands of dollars. Texas has transfer agreements that make this path clearer than in many states.
• Live at home or off campus. Housing and food often cost more than tuition at a public university. Commuting or sharing an off-campus apartment can save $5,000 to $10,000 a year.
• Appeal the award. Colleges have discretion over institutional aid. A polite appeal citing a competing offer from a peer school, a strong academic record or a change in family circumstances often works, especially at private colleges that compete for students.
• Pay interest while in school. If your child borrows, paying the interest on unsubsidized loans during school keeps the balance from growing.
• Work during school. A part-time job or paid internship covers living costs, builds a résumé and reduces borrowing.

Your college planning checklist

• Decide what you'll pay for and set a dollar target per child.
• Open a 529 early, and if you have the cash, consider a five-year election to front-load up to $95,000 per child ($190,000 as a couple) in 2026.
• If you expect a Texas public university, look at the Texas Tuition Promise Fund before the February 28 enrollment deadline.
• Fund retirement first. Max your 401(k) and IRA before adding to college accounts beyond your target.
• Avoid large UTMA balances unless you're comfortable with the kiddie tax and the child controlling the money at 21.
• Coordinate grandparents. A grandparent-owned 529 or direct tuition payment may be better for aid and estate planning than a cash gift.
• Watch the FAFSA base year. Avoid large capital gains, Roth conversions or business distributions in the tax year that will be reported, which is two years before the aid year.
• Business owners: consider employing your child, and plan for the AOTC decision in the first year of college.
• File the FAFSA in the fall of your child's senior year even if you expect no need-based aid, and the CSS Profile where required.
• Revisit the plan every year. Costs, tax law and your child's plans change, and so should the contributions and investment mix.

Getting help with college planning

College planning sits at the intersection of taxes, investments, estate planning and family goals, and for high-income families the decisions interact: how you save affects your taxes, your estate and whether your child's financial aid application is worth filing. A plan that covers all of them at once avoids the common mistakes, such as overfunding a custodial account, selling appreciated stock in the FAFSA base year or leaving a 529 balance with no plan for it.

Mercer Street helps college-bound families in Houston and across the country fit education funding into a broader financial and tax plan. Ryan Firth is a CPA/PFS, CFP® and Certified College Financial Consultant. A comprehensive financial plan is a flat $5,000, and plan clients get our best rate, $450 per hour, for implementation and ongoing advice. If you'd rather start with just the college question, limited-scope planning is $600 per hour with a two-hour ($1,200) minimum. We don't manage investments, sell products or prepare tax returns. If you'd like to talk through your family's situation, schedule a consultation.