It's tempting not to overfund your children's 529 accounts, but it's a bad idea.
529 plans are tax-advantaged investment accounts designed to pay for education expenses. Money you contribute to a 529 is taxed upfront, just like money you put into a Roth retirement account. When you withdraw funds to pay for qualified education costs, such as tuition, room and board, and laptop. In addition, the beneficiary may spend up to $10,000 per year on K-12 education costs and up to $10,000 throughout their lifetime to pay back student loans.
Perhaps the main disadvantage of the strategy is that it may only be used on qualifying educational expenses. You'll incur a 10% penalty and income taxes on any money withdrawn from the account you don't utilize (your first contributions are not taxed).
Keep in mind that you can withdraw the value of a student's tax-free scholarship or grant and use it for any purpose without incurring a penalty. Income taxes will still be due, so you'll essentially be keeping the cash in a taxable brokerage account.
There other options for what to do with a 529 plan if the beneficiary decides to not go to college, including using it at other qualifying two-year associate degree programs, trade schools, and vocational schools, or changing the beneficiary
The solution is to set aside a portion of your college fund elsewhere, such as a taxable brokerage account. Some people maintain a college fund within a permanent life insurance policy, which typically allows you to withdraw your premiums tax- and penalty-free.