Saving for Children’s Education: Smart Planning

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Written by Shaun

July 10, 2024

The cost of higher education keeps going up, making parents wonder: “How can I make sure my child is financially secure for their future education?” The Brookings Institution says the average cost to raise a child to 18 is $310,605. Tuition, fees, and other college expenses can easily hit five figures. So, planning and saving smartly is more important than ever.

Key Takeaways

  • The rising costs of higher education are a significant concern for parents.
  • Starting to save for children’s education early is recommended to account for escalating future costs.
  • Tax-advantaged savings options, such as 529 plans and Coverdell Education Savings Accounts, can help maximize your investment.
  • Custodial accounts like UGMA and UTMA offer additional ways to save for your child’s future.
  • Scholarship opportunities and financial aid can help offset the burden, but should not be the primary strategy.

The Rising Costs of Higher Education

Planning for your child’s future means thinking about the growing cost of higher education. College costs keep going up, making it tough on families’ budgets. The average tuition and fees for the 2023-2024 school year are $42,162 at private colleges, $23,630 for out-of-state students at public universities, and $10,662 for in-state students at public universities, as reported by U.S. News and World Report.

Tuition and Fees at a Glance

Adding in room and board, books and supplies, and other costs, college expenses can go over $90,000 a year at top private universities. This high cost might seem scary, but knowing about college costs and higher education expenses helps prepare for your child’s education.

“The average cost of college in the U.S. is $36,436 per year, including books, supplies, and daily living expenses.”

The rise in college costs comes from higher tuition, fees, and living costs on campus. When planning for your child’s education, look into all your options to help them succeed.

Tax-Advantaged Savings Options

529 plans

The cost of higher education keeps going up. It’s important to look into tax-advantaged savings options for your child’s future education. The 529 plan is a top choice, offered by all 50 states. It lets your money grow without taxes and withdrawals are tax-free for things like tuition and books.

529 Plans: Education Savings Accounts and Prepaid Tuition Plans

There are two main types of 529 plans: education savings accounts and prepaid tuition plans. Education savings accounts let you invest in things like mutual funds to grow your savings. Prepaid tuition plans help you lock in current tuition rates at colleges, which could save you money later.

Recent laws like the SECURE Act and SECURE 2.0 have made 529 plans even better. Now, you can use the funds to pay off up to $10,000 in student debt for the account’s beneficiary and their family. You can also move up to $35,000 from a 529 plan to a Roth IRA for the beneficiary, giving them more financial flexibility.

“529 plans offer a tax-advantaged way to save for your child’s education, with the potential to earn a return on your investment. The combination of tax-deferred growth and tax-free withdrawals makes these plans a smart choice for many families.”

529 plans are a great option, but there are others too. Coverdell Education Savings Accounts (ESAs) and custodial accounts like UGMA and UTMA also have their own benefits for families saving for education.

Custodial Accounts: UGMA and UTMA

custodial accounts

If you’re planning for your child’s future, custodial accounts are worth looking into. These accounts, like the Uniform Gift to Minors Act (UGMA) and the Uniform Transfer to Minors Act (UTMA), let adults give money or assets to minors. They’re different from a 529 plan because they’re not just for education.

Custodial accounts offer a variety of investment choices. You can invest in stocks, bonds, mutual funds, and even real estate. This means your money could grow more than in a 529 plan. But, remember, these accounts can affect a child’s college financial aid.

When the child turns 18 to 25, depending on the state, they take full control of the account. They can spend the money on anything, not just school. This freedom could lead to spending on non-school items.

Giving gifts to minors through custodial accounts is simple. The UTMA account lets you invest in more things, like real estate and tangible assets. The UGMA is for more common investments.

Custodial accounts are great for saving and investing for a child’s future. But, think about the downsides, like how it might affect financial aid and the child’s access to the money. Make sure it fits your family’s financial plans.

saving for children’s education

Roth IRA for kids

The cost of higher education keeps going up. It’s important to start saving for your child’s future early. There are many ways and tools to help you save for their education.

A Roth IRA for kids is a strong choice if your child earns money. They can put money into a Roth IRA, which grows tax-free. This can help start their retirement savings and save for college.

CDs (Certificates of Deposit) offer a safe return and are insured by the government. Savings bonds, like Series EE and I bonds, are also backed by the government and are worth looking into.

Opening a regular brokerage account in your name is another option. You can then move it to your child later. This lets you invest in different things, possibly earning more over time.

It’s important to start saving early and put money in regularly. Starting early can really help with college costs. Getting advice from a financial advisor can also help you pick the best savings plan for your family.

“Children with a savings account of $1 to $500 are three times more likely to enroll in college and over four times more likely to graduate.”

Looking into these savings options and planning for your child’s education can give them a great start. This can lead to a successful and happy future.

Getting an Early Start

early savings

As college costs keep going up, early savings and regular contributions are crucial for your child’s education. Starting to save early can greatly increase the money you’ll have for tuition later. This is thanks to compound growth.

Using a 529 plan, a custodial account, or another savings option is a good idea. The sooner you start saving, the better. Experts suggest saving enough to cover half the expected costs. For a newborn, this means putting away $232 each month, assuming a 6% return each year.

But, if you wait four years to start saving, you’ll need to put away almost $100 more each month.

“Nearly 3 in 10 parents with personal student loan debt prioritize saving for their children’s education over saving for retirement, emphasizing a potential trade-off between immediate and long-term financial planning.”

With rising college costs, it’s vital to start saving early. By saving regularly and letting your money grow, you can create a big college fund. This can ease the load of tuition and other costs. Talk to a financial advisor to find the best savings plan for your family’s needs and goals.

Balancing Savings and Financial Aid

When saving for your child’s education, it’s key to balance their college fund with financial aid. This balance depends on the savings accounts you use and how they affect financial aid.

529 plans are a good choice for saving for college. They are seen as parental assets, which counts less in financial aid. This means your child might get more aid if you save in a 529 plan.

Custodial accounts like UGMA and UTMA affect financial aid more. They are seen as student assets. Up to 20% of their value can be used in the EFC calculation. This could lower the aid your child gets.

“It’s important to understand how different types of savings accounts can impact financial aid,” explains a financial advisor. “Striking the right balance between building your child’s college fund and preserving their eligibility for aid can make a big difference in the long run.”

Also, you can move 529 plan funds to another family member or use them to pay off student loans. This gives you more options. By thinking about financial aid, parental vs student assets, and 529 plans, you can save for college without hurting your child’s aid chances.

The main thing is to start saving early and make regular contributions. Work with financial advisors to create a plan that fits your family’s needs and the changing college costs.


Saving for your child’s education is key to their future. You have many options like 529 plans, custodial accounts, Roth IRAs, CDs, and savings bonds. Each has its own tax benefits, control levels, and flexibility.

By starting early and saving regularly, you can use compound growth to your advantage. This way, your child will have enough money for their education. It could be a traditional university, a trade school, or something else.

Work with a financial advisor to make a plan that fits your family’s needs. They can guide you through the savings options. They’ll help you get the most from tax benefits and balance education savings with your retirement goals.

With good planning and saving, you can give your child a strong financial base. This opens doors to many educational opportunities and sets them up for success. Use the savings tools’ flexibility and tax benefits. Start saving now for your child’s education.


What are the average costs of college tuition and fees?

The average cost for tuition and fees in the 2023-2024 school year is ,162 at private colleges. For out-of-state students at public universities, it’s ,630. In-state students at public universities pay ,662. Adding room, board, books, and other costs, the total can go over ,000 at top private schools.

What is a 529 plan and how can it be used?

A 529 plan is a tax-advantaged college savings plan available in all 50 states. It lets you save for college with tax-free withdrawals for qualified expenses like tuition and books. Now, 529 plans can also cover K-12 costs, apprenticeships, trade schools, and even help pay off student loans.

How do custodial accounts work, and how do they differ from 529 plans?

Custodial accounts let a parent or adult gift money to a minor. They offer more investment options than 529 plans. But, they’re seen as the child’s money, which can affect financial aid. The money also belongs to the child when they turn 18.

What other savings options are available for funding a child’s education?

You can also use Roth IRAs, CDs, savings bonds, and traditional brokerage accounts. Starting to save early and adding money regularly helps with the rising cost of college.

How do 529 plans impact financial aid eligibility?

529 plans are considered less in financial aid calculations than student-owned accounts. This can make a child eligible for more aid. It’s because 529 plans are only counted up to 5.64% of your total assets.

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