Parents often ask whether they should "use a 529 or set up an LLC." It's the wrong framing — they solve different problems, and for many families the real question is how the two interact.
What a 529 actually does
A 529 is a dedicated college-savings account: contributions grow tax-deferred and come out tax-free when used for qualified education expenses. New Jersey now offers a state income-tax deduction for contributions up to a limit for qualifying households. It is simple, clean, and purpose-built for one thing — saving for education.
What an LLC actually does
An LLC is not a savings vehicle at all. It's a legal business structure that — when a genuine, profit-motivated business operates inside it — can coordinate benefits across insurance, taxes, and how income reads on the FAFSA. It does nothing on its own; everything depends on the real business behind it.
Where families get the interaction wrong
- Aid treatment differs. A parent-owned 529 is generally assessed as a parental asset on the FAFSA — relatively lightly, but it counts. Business assets and income are treated under different rules.
- One can affect the other. How you draw income through a business can change the income the FAFSA sees in a given base year — which can matter more than the asset treatment of a 529.
- Timing is everything. Both tools interact with the base year. Using them without that calendar in view can quietly work against you.
So which one?
For most families, a 529 is a sensible savings foundation regardless. An LLC is only relevant if there's a real business — and when there is, it operates on a different axis entirely (insurance, deductions, income positioning), not as a 529 substitute. The two are complements, not competitors.
The right question isn't "529 or LLC?" It's "given my family's whole picture, how should both fit together?"
These aren't either/or for most families — the question is how they interact with your aid and insurance picture. That's a one-room conversation.