An alternative to the traditional 529 Plan …
The best alternative to a 529 Plan is to simply fund a properly drafted special needs trust for the benefit of a person with special needs. Anyone can establish a special needs trust for the benefit of a child with special needs, however the funds in the trust do not grow tax-free. On the plus side, a special needs trust provides much more flexibility than a 529 account in terms of spending the trust assets for the benefit of the child. While a donor may not be able to guarantee that the funds held in the trust will be used entirely for education, there are mechanisms that can be put into a special needs trust to ensure that a child’s educational expenses are taken into consideration when funds are distributed, and the donor of the trust can retain some powers over how distributions are made.
Another way to save for college is for parents or grandparents to establish a savings or investment account in their own names and then simply spend the funds in that account for the college education of a child with special needs.
