3 Smart Ways to Save for Your Child’s Education

For many parents, sending their children to college is a major financial milestone and a deeply personal goal. But rising education costs and shifting college trends can make saving for college feel overwhelming. The good news? With the right guidance and a thoughtful approach, you can make smart decisions that support your child’s future without compromising your own.

Let’s explore the current landscape, the most popular savings strategies, and how working with a financial professional can help bring clarity and confidence to your college savings journey.

College Is Pricier Than Ever

The cost of a four-year college degree has soared, from just $243 a year in 1963 to over $11,000 today (not counting room, board, or books). Unsurprisingly, many students are exploring faster, more affordable options like trade schools and two-year programs, earning them the nickname “The Toolbelt Generation.”

Still, for families committed to a traditional college path, having a solid savings strategy is crucial. Here are three smart ways parents are helping fund their children’s education.

1. 529 Education Savings Plans

A 529 plan is a tax-advantaged investment account designed specifically for education expenses. Contributions grow tax-deferred, and withdrawals are tax-free when used for qualified education costs such as tuition, housing, books, and equipment.

What makes 529 plans even more appealing is their flexibility. Funds can now be used for:

Up to $10,000 per year in K-12 tuition
Vocational and technical schools
Registered apprenticeship programs
A lifetime total of $10,000 to pay off student loans

And now, unused 529 funds can even be rolled into a Roth IRA (up to $35,000), offering additional value for long-term planning.

Keep in mind: While the investment grows over time, it is subject to market risk, and principal is not guaranteed.

2. 529 Prepaid Tuition Plans

If you’re looking for more certainty, a prepaid tuition plan may be worth considering. These allow you to “lock in” today’s tuition rates at an in-state public college. While they don’t cover room, board, or other expenses, and aren’t as flexible as education savings plans, they can help protect your savings from future tuition hikes.

Some prepaid plans are backed by the state, adding an extra layer of protection. However, availability and guarantees vary by state, so it’s important to understand the fine print.

3. Custodial Accounts (UGMA/UTMA)

These accounts are opened by an adult on behalf of a minor and can be used for anything that benefits the child, including education. Unlike 529 plans, custodial accounts don’t carry tax advantages and are considered the child’s asset once they reach adulthood (usually age 18 to 25, depending on your state).

This flexibility can be a plus if your child earns a scholarship or decides not to attend college, but it can also impact financial aid eligibility more than other account types.

How Your Savings Impact Financial Aid

Many parents worry that saving for college might reduce their child’s eligibility for financial aid. While that’s partially true, the impact depends on the type of account.

529 plan assets are typically considered a parental asset, which means only about 5.6% of the value counts against financial aid. In contrast, assets in a custodial account are treated as the student’s and can reduce aid eligibility by as much as 25%.

Here’s a quick comparison:

$10,000 in a 529 plan = ~$564 reduction in aid.
$10,000 in a custodial account = $2,000+ reduction in aid.

We can walk you through these details and help you build a strategy that protects both your savings and your financial aid options.

Balancing Education Costs with Other Financial Goals

It’s natural to want the best for your children, but saving for college shouldn’t come at the expense of your own financial well-being. You might also be saving for retirement, paying off debt, or managing healthcare costs.

That’s why it’s so important to create a strategy that accounts for all your goals. A financial advisor can help you prioritize, plan, and make adjustments over time so you don’t have to choose between your child’s future and your own.

When Should You Start Saving?

The sooner, the better. Time is one of the most powerful tools in your financial toolkit thanks to the magic of compounding interest. For example:

Start saving at birth: $256/month for 18 years at a 6% return = $100,000 goal.
Start saving at age 8: $600+/month for 10 years at the same rate = $100,000 goal.

Even small contributions can add up over time, so don’t wait to get started.