College is expensive, and the costs of higher education are only expected to go up. If you’re planning to send your kids to college, here’s how to start saving.

How will I pay for my kid to go to college?

College is still a long way off for my kid…Do I need to start saving now?

College tuition can’t keep increasing like this…right?

The rising cost of a college education is seemingly on everyone’s minds, whether you’re planning to start a family, are a new parent, or have older kids. Since we often get questions about education financial planning here at Society of Grownups, I sat down with Rachel Rabinovich, CFP®, one of our financial planners, to get her take on how parents—at any stage—can prep for this big expense.

Getting Started: Have the Saving for College Conversation

“There are so many options for saving for your child’s college education. Before you start to think about what type of account is best for you, time some time to think about where college planning fits into your overall financial plan,” says Rabinovich. “Consider how you want to prioritize this goal in the context of the other goals you are saving for as well.”

Questions to ask yourself:

  • Look at your goals: Where does saving for college fit?
  • Is it a higher priority for you to be saving for your retirement or for your child’s college education?
  • Do you want to pay for your child’s education in full or in part?
  • What will you expect your child to contribute?

“Talk with your kids about what you expect from them early on.  It’s important for them to understand what they will be responsible for so they can begin to make informed choices,” says Rabinovich. “This is also a great opportunity to start teaching them how to manage money at a young age!”

Start Early, Choose Your College Savings Plan

Once you’ve decided saving for your child’s college education is a priority, get going as soon as possible. With any savings goal, it’s always better to start earlier. However, even if you’re late to the game, it doesn’t mean you shouldn’t start at all: What matters is you’re planning.

This is no joke: College is expensive now, and expected to be (really) expensive later, too. For example, let’s assume your child is born today and plans on attending an in-state public school at the age of 18. If you contribute $200 per month to a 529 savings plan, assuming a 4 percent increase* in college costs per year (the average annual increase over the past three decades), and a 6 percent annualized return in the 529 savings plan, you’d be able to cover about 50 percent of your child’s college education. In sum: $200 per month every year for the next 18 years, invested wisely, will only ensure you’ll be able to pay half of the expected cost of the most affordable college choice. So yes, it’s important to get started as soon as possible.

Here are the types of college savings plans available:

  1. 529 Savings Plan: Invest up to $14,000 per year or choose a five-year upfront beneficiary setup without triggering a gift tax. Then, investments grow tax-deferred, and are tax-free as long as they are used for qualified higher education expenses. There are no income restrictions on who can contribute, and (depending on the state where you open the 529) there may be some tax deduction options. Investment earnings not used for qualified educational expenses may be subject to tax and a 10 percent penalty.
  2. Pre-paid 529 Plan: Pay now for tuition, fees, and other qualified higher education expenses, based on today’s rates (primarily at in-state public schools), with a maximum contribution of the cost of five years at the most expensive participating school. When it’s time to go to college, students are limited to enrolling at those participating schools. These plans may also be converted for use at private and out-of-state colleges.
  3. Coverdell Savings Plan: Contribute after-tax dollars (up to $2,000 per year per beneficiary age 18 or younger) in an investment account, tax-deferred and tax-free if used for qualifying K-12 and higher education purposes. There are income restrictions on who can contribute, based on parent/guardian assets.
  4. Qualifying U.S. Savings Bonds: Available for tuition and fees only, these accounts save up to $10,000 in deposits per year, per owner. All contributions are after tax, but the interest may be tax-free if the bonds are redeemed to pay for qualified higher education costs. There are income limits for tax-free interest status.
  5. Uniform Transfer to Minors Account (UTMA)/Uniform Gift to Minors Account (UGMA): These plans have no limit on contributions, but are subject to gift-tax rules. They’re not tax deferred and at the age of majority (which varies by state), the beneficiary child owns the assets outright and can use them for anything. (Like, say, a trip to Vegas rather than a college education.) The first $1,000 of gains are tax-exempt, the next $1,000 are taxed at the beneficiary/child’s rate, and any gains after that are taxed at the parents’ rate.
  6. Roth IRA: These types of accounts typically associated with retirement may also be used to fund qualified higher education expenses. Contributions may be withdrawn tax-free. However, earnings may be subject to tax, but excluded from the early withdrawal penalty if used to pay for qualified higher educational expenses.
  7. Standard Savings and Investment Accounts: There are no limits as to what can be saved, and anyone is eligible to open an account, but these accounts do not provide any tax benefits. Earnings are generally limited in regular savings accounts.

Not sure which options are right for you? Don’t worry, there are plenty of online tools to help demystify the plans and process: Compare available plans using sites such as or You can also look at the actual costs of particular schools using online tools such as the College Board’s Big Future, and see your anticipated eligibility with the FAFSA4caster.

Once kids are in school, parents can check out PLUS loans and available tax deductions, such as the American Opportunity tax credit and the Lifetime Learning tax credit, to help with college financing while a dependent is in school and after. Just note that you can’t claim both credits for the same student in the same year.

Be an Educated Consumer

As your child gets older, make sure you’re prepping beyond finances, too. “Consider what kind of school will be the best fit for your child,” says Rabinovich. “College is so expensive that you want to make sure that you are mindful of what your child will need in terms of academics, location, sports, and activities, not just the cost.

“Take time to explore your options just like you would with any major purchase. Visit the schools your child is interested in to see if they feel like a fit. Take the opportunity to research the programs offered and whether they align with your child’s goals. Weigh the cost against career prospects and the student loan debt your child may have to carry.”

And remember: When it comes to saving for college, there’s no one right way to do it. Find the plan that makes sense for you and your family.


A lifelong traveler and bookworm, Sarah spends her days thinking of new ways to explore and tell stories.

*Keep in mind future inflation rates will vary.

**These figures are hypothetical and actual returns can be higher or lower, and there is no assurance any particular rate will be achieved. Variations in returns, contributions, withdrawals and other factors will affect your total earnings or possible losses.

 Any third-party resources or websites referenced above are not under our control. We cannot guarantee and are not responsible for the accuracy of the resources, websites, or any products or services available through such resources or websites. Society of Grownups does not give tax or legal advice. You are encouraged to seek advice from a tax or legal professional.

While Society of Grownups hopes the information is useful, it’s only intended to provide general education. It’s not legal, tax, or investment advice, and may not apply or be useful to your specific financial situation. If you need recommendations geared to your personal financial situation, schedule time with a financial planner.

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