Bitcoin (BTC) Emerges as a New College Savings Vehicle as Parents Opt for Cryptocurrency over Traditional 529 Plans

A growing number of families are banking on Bitcoin (BTC) as a hedge against inflation, which got worse in December, as consumer prices rose 2.6%

Bitcoin (BTC) is gaining traction among some parents as an alternative savings vehicle for their children’s college education, despite its extreme volatility.

According to Bloomberg, a growing number of families are turning to the flagship cryptocurrency as a hedge against inflation, which worsened in December. Consumer prices rose 2.6% over the past year, compared to a 2.4% annual pace in November.

The bet is that Bitcoin, as an asset, has stronger long-term growth potential than conventional savings accounts such as the traditional 529 plan.

Bitcoin, these parents argue, could yield better results over time.

CryptoCoinToss, a blog that delves into various aspects of cryptocurrency investing, shares a similar sentiment. According to one post, Bitcoin’s deflationary nature is a compelling reason for parents to explore it as an alternative savings vehicle to, say, the state-sponsored 529.

Why? Even though 529 college savings plans help individuals save for educational expenses with certain tax advantages, they come with drawbacks. Funds must be used strictly for school-related costs (i.e., tuition, books, room and board). If a high school graduate wishes to use the funds to, say, start a business or travel abroad, withdrawals face a 10% penalty plus taxes.

Moreover, 529 assets can reduce financial aid eligibility, especially if owned by grandparents. State-specific rules vary, with some plans offering better tax benefits than others, and high fees can be a drawback. Despite these limitations, 529 plans remain a popular choice for college savings.

An Upromise blog entry outlines the financial aid and tax implications of using cryptocurrency for college savings. Bitcoin and other virtual currencies are considered assets on FAFSA forms, meaning they must be reported and can impact financial aid eligibility.

If sold for a gain, the profit is included in the adjusted gross income, potentially reducing aid.

Only a few U.S. schools—King’s College (NY) and Wharton (UPenn)—accept Bitcoin for tuition; however, several international institutions do. Nevertheless, student loan payments cannot be made directly with Bitcoin, requiring holders to sell their crypto first, which comes with tax consequences.

And, currently, there is no way to put crypto in a 529 plan. However, it’s worth noting that President Donald Trump has changed the 529 rules before.

Under the Tax Cuts and Jobs Act of 2017, 529 college savings plans were expanded for K-12 private school tuition.

That means the law allows up to $10,000 per year from a 529 plan to be used for tuition at private, religious, or other qualifying K-12 schools. It does not extend this benefit to cover public school-related expenses, such as fees for books, supplies, or activities.

Whether Trump, who fancies himself the first pro-crypto president, will somehow mesh Bitcoin into 529 plans remains to be seen.