College Savings and Bitcoin: Expanding Investment Options for 529 Plans

Executive Summary

Rising tuition costs, persistent inflation, and limited investment flexibility in 529 college savings plans are eroding families’ ability to save effectively for higher education. While the plans offer valuable tax advantages, they restrict investors to narrow, state-selected mutual fund portfolios that underperform relative to IRAs and HSAs. These limitations prevent households from accessing inflation-resistant assets and stronger long-term growth opportunities.

This research evaluates how modernizing 529 plans to permit bitcoin allocations could improve returns and better safeguard education savings. Bitcoin has historically delivered strong long-term performance and offers diversification benefits due to its low correlation with equities. Portfolio modeling shows that even small allocations of bitcoin—1–2%—increase compound annual returns and Sharpe ratios, boosting portfolio efficiency without materially increasing risk.

Key Findings

• 529 Plan Underperformance: Even top-performing 529 plans trail IRA benchmarks by 4–5% annually due to limited asset choice and higher fees.
• Rising Costs: Tuition—especially at private universities—continues to outpace inflation, requiring stronger investment returns for families to keep up.
• Bitcoin’s Asymmetric Upside: Historical data shows that small bitcoin allocations dramatically increase portfolio performance. For example, a standard Maryland 529 portfolio grew to $36,710, while adding 1% bitcoin grew it to $145,674, a 297% increase.
• Unnecessary Restrictions: IRAs and HSAs allow bitcoin exposure, but 529s do not—despite having similar investor demographics and financial literacy levels.

Policy Recommendations

1. Federal Modernization: Issue federal guidance or amend the tax code to allow bitcoin in 529 plans, aligning them with the investment flexibility of IRAs and HSAs. A model similar to Executive Order 14330, which enabled bitcoin access in 401(k)s, would streamline nationwide adoption.‍
2. Wyoming “Freedom 529 Plan": Establish the first bitcoin-inclusive 529 plan in Wyoming—the only state without a current plan. Wyoming’s pro-bitcoin legal framework makes it an ideal environment to launch a national model with modern, open investment options.‍
3. State-Level Modernization: Encourage states to update their 529 offerings by incorporating bitcoin and other alternative assets, expanding payment capabilities (such as ACH), and advocating for more flexible rules on portfolio adjustments.

Conclusion

As tuition continues to rise faster than inflation, families need investment tools that deliver higher returns and stronger long-term protection. Traditional 529 plans, while tax-advantaged, lack the flexibility and growth potential needed to meet modern education costs. Allowing even small allocations of bitcoin can enhance returns, improve risk-adjusted performance, and help 529 plans better fulfill their mission of supporting future students.

Modernizing 529 plans—through federal guidance, state innovation, or both—would expand investor choice, increase portfolio resilience, and align education savings strategies with today’s financial realities.