How to save for college
When it comes to planning and saving for your kids’ college years, there’s really no such thing as starting too soon. Even if your contributions start small, over time they can benefit from the multiplying effect of compound interest.
What you’ll learn:
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You can use an online cost calculator to estimate how much you’ll need to send your child to college.
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Opening up tax-advantaged accounts like a 529 savings account, a Coverdell education savings account (ESA) or a high-yield savings account are a few of the options you have to grow a college savings fund.
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Scholarships and financial aid can help offset additional expenses and reduce the overall cost of tuition.
How much should you save for college?
There’s no set answer to how much you should save for college. The price of education is changing all the time, and everyone’s financial situation is different. But there are online tools and calculators that can help you estimate how much it costs to attend college and what you’ll need to get on track.
Dedicated funds to start saving for college
Once you’ve set a savings goal, you’ll need somewhere to put the money. Here are some accounts for college savings that you can mix and match or use individually. Each type of account has rules for how the funds can be used, so it’s a good idea to check terms and conditions before you open one.
529 accounts
529 plans offer tax-advantaged savings accounts designed for future college or other postsecondary education costs and fees. When your student attends college or vocational school, you can withdraw money tax-free for qualified expenses.
Coverdell ESA
Coverdell ESAs are another type of tax-advantaged savings account for education expenses. Unlike 529 plans, Coverdell ESAs have a federal cap on annual contributions and income limits, and you can choose your investments. The beneficiary must use the funds by age 30.
Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts
UGMA and UTMA accounts are established at the state level and don’t have income or contribution limits. The funds don’t have to be used for education purposes and can be taken out at any time. You can access tax benefits by gifting the money or assets to the child. You can check terms and conditions for what is considered a gift.
Traditional deposit accounts
A traditional deposit account may not come with any tax advantages but could offer easier access to the funds, meaning you may be able to dip into them for emergencies. This category includes things like high-yield savings accounts, certificates of deposit and money market accounts.
Scholarship opportunities
As your child nears college age, consider looking for available scholarships. These can supplement your savings and help offset the costs of higher education. You may be able to learn more or access them through:
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High school counselors
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College financial aid offices
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Community organizations
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Your state’s department of education
Financial aid
The Free Application for Federal Student Aid (FAFSA) is required to access both federal and state financial aid programs such as student loans, grants and work-study programs.
The application opens Oct. 1 every year. You need to submit the FAFSA every academic year to remain eligible.
Saving for college FAQs
Here are answers to some common questions people may have about saving for college.
Will I lose the money if I don’t use my savings for college?
Your smart planning can still pay off even if your child doesn’t go to a four-year college. Each plan type handles noneducational fund usage differently. But if you’ve contributed to a 529 plan, for example, you can apply the money saved toward accredited trade and vocational schools or transfer it to a sibling.
You can also consider rolling over up to $35,000 from a 529 plan into a Roth IRA tax- and penalty-free. There are limitations to be aware of, though. For example, the 529 account must have been open for at least 15 years, and potential transfers must have been in the account for five years.
Can my child miss out on financial aid if I save for college?
If your kid is up for a merit-based scholarship, your savings won’t affect that.
Saving for college can have an impact on need-based aid. Decision-makers consider three factors with any application for federal or state financial aid: cost of attendance, outside financial resource contributions and expected family contribution. A parent-owned asset, like a typical 529 plan, can reduce aid eligibility by up to 5.64% of the account value. A student-owned asset, like an UGMA account, can reduce aid eligibility by as much as 20%.
Key takeaways: How to save for college
There are a few different ways to save for college. Scholarships and financial aid can help offset some of the costs.
If your child is about to set off for college, a Capital One student credit card can help them build their credit. They can explore the credit cards they qualify for by seeing whether they’ll be approved. It’s quick and easy, and it won’t hurt their credit scores.
