How to Save for College: 529 Plans and Beyond

The average cost of a 4-year college education (including room and board) is now $110,000 at a public school and $240,000 at a private school. With tuition rising ~5% per year, a child born today will face costs 40-50% higher. Starting early makes an enormous difference.

The 529 Plan: Best Tool for College Savings

A 529 is a tax-advantaged savings plan specifically for education. Contributions grow tax-free, and withdrawals for qualified education expenses (tuition, room and board, books) are also tax-free. Many states also offer a state income tax deduction for contributions.

• No federal deduction, but 36 states offer state tax deductions
• No contribution limits (though gift tax applies above $18,000/year)
• Can be used at any accredited college, university, or vocational school
• As of 2024, unused funds can be rolled into a Roth IRA (up to $35,000 lifetime)
• If the child doesn't go to college, you can change the beneficiary to another family member

How Much to Save Per Month

• Starting at birth, saving $250/month at 6% return = ~$90,000 by age 18
• Starting at birth, saving $400/month at 6% return = ~$145,000 by age 18
• Starting at age 10, saving $500/month at 6% return = ~$60,000 by age 18
• Starting early matters — starting at birth vs age 10 doubles the outcome

529 vs Other Options

• 529 plan: Best for most families — tax-free growth specifically for education
• Custodial account (UGMA/UTMA): More flexible but no tax advantage, counts more against financial aid
• Roth IRA: Can be used for education, but takes away from retirement savings
• Savings bonds: Safe but low returns