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How to Save for College

6 min read

Last Updated: April 15, 2025

Table of contents

Key Takeaways

There are multiple options for parents wanting to start an education savings account for their children.
If you plan to cover some or all of college tuition costs for your child, you should start saving as soon as possible.
Automatic transfers to your college savings account can help make it easier to save.

Are you looking for ways to pay for college? Student loans, grants, and scholarships are just a few ways you can help cover the cost of a college education. Grants and scholarships aren’t a guarantee, though. This is where creating a healthy college savings becomes important.

Money that you set aside for your child’s future education can go beyond tuition. You can use your savings towards things like books, housing, food, and other expenses your child may have at school.

Building a college savings fund is a significant, long-term, and worthwhile commitment. Even if you can only save a small amount per month, this can add up and help you offset the cost of college. Here are a few things you should know about starting a college savings fund.

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Different college savings options

There are many different options to help you reach your goals. From 529 plans to Roth IRAs, each set comes with benefits and drawbacks. By understanding all these choices, you’ll be ready to make informed decisions about how to save your money.

529 College Savings Plan

According to the U.S. Securities and Exchange Commission, a 529 plan is a tax-advantaged strategy for college savings. The money that you put into a 529 grows tax-free and you can use it tax-free for qualified educational expenses. Examples of qualified educational expenses can include:

Tuition
Room and board
Books
Mandatory fees

You can even use up to $10,000 of the 529 to repay student loans. Additionally, the SEC says you can use the savings plans to pay for other education-related expenses. These expenses include up to $10,000 per year per beneficiary for tuition at:

Public, private, or religious elementary or secondary school
Certain expenses required for participation in registered apprenticeship programs

Are there drawbacks to a 529 college savings plan? Yes, there are a few. For example, if your child doesn’t go to college, there are only a few tax-free options on what you can use the account for. You’ll pay a 10% tax penalty on earnings spent on ineligible higher education expenses.

Custodial Uniform Gift/Transfer to Minor Account

Other college savings options are a custodial Uniform Gift or Transfer to a Minor Account (UGMA or UTMA accounts).

As the name suggests, these are investment accounts setup for a minor child. However, they are under the control of the custodian (parent, guardian or relative) until the child becomes of age.

Information from the Social Security Administration states that the money you put into a UGMA or UTMA can be used for anything, not just qualified education expenses. Because of this, you have more flexibility than a 529 account.

Unlike 529 savings accounts, there are no tax benefits to UGMA or UTMA accounts. It’s also important to note, according to Federal Student Aid, that FAFSA considers UGMA or UTMA accounts a student asset, so it can impact your student’s financial aid.

Roth IRA

You might think that a Roth IRA is only for retirement. But there are other ways that you can get money out of your Roth IRA without penalty. One way is through qualified higher education expenses. That’s why some people believe that a Roth IRA is a good way to save money for college.

According to the Internal Revenue Service, some of the options you have include opening a Roth IRA for a child (who must have earned income) or you can use your Roth IRA to pay for their college expenses.

Is there a drawback to using Roth IRAs to pay for college? Yes. First, you could be taking out money from your retirement account and setting that savings goal back. Second, the distribution must be for qualified higher education expenses or it will be subject to the 10% additional tax.

When to start saving for college

When it comes to saving for college, the earlier that you can start, the better. You should try to start saving for college for your loved ones as soon as possible, that way there will be more savings to grow.

You can even start saving for a child’s college costs before they are born. According to the Ohio Tuition Trust Authority, you would open a 529 account as the owner and beneficiary. Then, you can transfer the account to the child after they have a Social Security number.

How much to save for college

The amount of money you should save for college will be different for each family. It could change depending on your child’s chosen career field and the kind of education that requires. Some online calculators can help give you an idea of what you need to save. Some common advice includes the ‘2K Rule of Thumb’, where you multiply your child’s age by $2,000 to see how much education savings you should ideally have by that age.

Determine how much college costs you will cover

Another point to consider is how much of your child’s college costs you’re willing to cover. Are there other sources of money available to help cover college tuition like financial aid or student loans?

The average cost of a year in a public college was $9,800 in 2022–23, according to the National Center for Education Statistics. This is 5% lower than it was in 2012–13. While covering the cost of college can be pricey, even if you can’t afford to fully pay tuition, having savings will help reduce the amount of student loans you or your child will need to take out, saving you money overall.

Once you’ve figured out how much you want to save, you can start creating a savings plan. Every little bit you save counts. The right credit card could help you avoid over-spending with extra fees. The key is making your savings consistent, so you’ll start to see your efforts grow.

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Set up automatic savings for college

If you plan to set aside money for college, one of the easiest ways to do this is to set up automatic savings. You can set automatic transfers from your bank account to your college savings account. You can even direct deposit a portion of your paycheck into a 529 account or other savings account.

The bottom line

There are plenty of ways to kickstart your college savings journey, from 529 plans to custodial accounts. College costs can quickly rack up, not just with tuition and room and board, but other costs like food, personal care items, and travelling home from campus. A student credit card may help you cover the cost in between. A student card could help build responsible spending habits and offer opportunities for perks and rewards, like cash back on purchases. Learn more about student credit cards.

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