Saving for College: A Guide for Your Child’s Future


When your kids are young, you spend all your time enjoying their company. You introduce them to new experiences. You also make sure they’re raised with ethical values and have a thirst for life. As they get older, however, thoughts tend to drift towards their future. When it comes to thinking about your children’s college education, money often plays a big part. 

Today’s modern students seem to be encouraged to enter the adult world with a heavy burden of debt. For them and you, this can be a terrifying prospect. According to figures provided by the Federal Reserve, more than half of young adults who went to college and high school in 2017 took on debt. The following year didn’t get any better, as 69% of the Class of 2018 took out student loans. They then ended up graduating with an average debt balance of almost $30,000.

Entering the workplace with such a tremendous amount of debt is not the best start in adult life for your children. Something you can do is help them avoid such burdensome debt. 

How Much Does Going to College Cost?

When calculating college costs, there’s plenty to factor into the equation. As well as having to pay for college tuition fees, there’s the cost of accommodation, travel, food, books, and other living costs. Let’s also not forget the price of entertainment. After all, studying every day does not guarantee success. College students have to take some time out, or they end up burning out.

So, how much does it cost? According to the latest figures, average tuition fees at state colleges amount to $10,230 for state residents and $26,290 for everyone else. At private non-profit colleges, the average is $35,830. Public sector two-year colleges have average fees of just $3,660.  Four-year college expenses are even higher.   

As well as tuition fees, the following have to be taken into consideration when working out the total cost.

Room and Board

When your child goes to college, the establishment offers a variety of dorm-room options. There are also unique meal plans for students who live on campus. How much it costs depends on what you choose and what the individual college offers. There’s also the option of living at home if your child attends a college within a reasonable distance. The final option is rented accommodation. On top of the rent, there will also be the cost of food to consider.

Books and Supplies

The internet is an excellent tool when it comes to research and learning, but books and other course materials still have to be purchased. A rough estimate for an average full-time undergraduate student is around $1,300. Costs can be cut by buying used textbooks or renting them. 


Unless your kids decide to attend a college near their home, there are going to be transportation costs to consider. This includes trips back home and the cost of getting around when on campus. Student discounts are available for some public transportation costs. If they’re going to be driving their own car though, you’ve got to allow for the cost of gas, insurance, and maintenance. 

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Personal Expenses

Personal expenses include things such as cell phone bills, laundry, eating out, breakfast coffees, or a drink with friends at the end of a hard college day. It includes things they’d typically spend money on if they were at home. 

It’s hard to put an actual number to the question of how much will college costs be? Everyone who attends is different, with their own needs, and day-to-day operations expenses. The things listed above are higher education expenses you have to take into account when working out how much money is needed. You also need to consider the cost of attending college isn’t going to go down anytime in the future. If anything, it’s set to increase around 4% annually, so take this increase into account as well. 

Once you come up with a number in mind, you can look at your options and work out how you’re going to save enough money.

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Different Ways to Save for College

A few options are in front of you if you aim to save for college. For those of you who haven’t started saving for college yet and don’t have the time to do some research, here are five of the most popular methods.

Mutual Funds

A mutual fund is a managed investment fund that pools money from many investors. The money is used to purchase securities. Shareholders funds this type of investment program, and a group of professionals operates it. A fund manager administrates the fund and is responsible for choosing the investments that make up the portfolio. The portfolio might include stocks, bonds, and a range of other assets. 

The benefits of this option include no limit to how much you invest, with more than 10,000 mutual funds to choose from. There are also fantastic benefits if the mutual fund manager knows what they’re doing and invests your money wisely.

There are, however, a few disadvantages. The first is that any earnings are subject to annual income tax. Capital gains are another tax that you have to pay when you sell your mutual fund.    

Custodial Accounts under UGMA/UTMA

A custodial account works much the same as a bank savings account. An adult can open Custodial accounts via the Uniform Gifts to Minors Act (UGMA), but the benefactor is a minor. The same stands for the Uniform Transfers to Minors Acts (UTMA account). Members of the minor’s family can make contributions to UTMA custodial accounts, as can anyone from outside the family. This type of account is available at a variety of financial institutions, including banks, credit unions, brokerage firms, or mutual fund companies. 

The account holder is minor, but the management of the account is the responsibility of a custodian. This person is usually the minor’s parent or guardian. 

When the account holder legally becomes an adult, usually between the ages of 18 and 21, depending on the state in which they reside, the management of the account transfers to them. 

The big downside of this type of account is that when the minor reaches adulthood, they can choose to spend the money in the account on whatever they like. Your grown-up children might decide to travel the world, spend it all in a casino in Las Vegas, but hopefully, pay their way through college. 

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Qualified US Savings Bonds

The US Department of the Treasury issues this type of debt security. The money raised by the purchase of these securities is used to help pay for the US government’s borrowing needs. They are known to be one of the safest investments because they have the backing of the US government.

Before 2012, savings bonds were paper purchases. However, since 2012, only electronic savings bonds are available. 

The advantage of buying savings bonds is that you pay no state or local tax on any interest that you earn. It’s also possible to defer the payment of federal tax until the bond matures or it’s cashed in.  

Roth IRA

This is a retirement account that offers a tax benefit that encourages you to save. Contributions to a Roth IRA are made using after-tax dollars. Any earnings accumulated on a tax-deferred growth basis, include qualified distributions made free of tax. There are, however, limits on the number of contributions that you can make each year. 

One of the benefits of this account is that withdrawals can be made at any time and for any reason. There is a 10% early withdrawal penalty on earnings, but if you spend them on qualified higher education expenses, this penalty is waived. 

Coverdell ESA

Coverdell Education Savings Account is the name now used for the Education IRA. It offers tax-free investment growth and tax-free withdrawals. Funds withdrawn do have to be spent on qualified education expenses.

The downside is that the maximum investment allowed is $2,000, and any contributions must be before the beneficiary reaches the age of 18. To contribute to this account, you have to earn between $95,000 and $110,000 or between $190,000 and $220,000 for married couples. 

If none of the above interests you, there is one more option you should consider.

A 529 Savings Plan Might Be What You’re Looking For 

This is a popular way you can save for college. Not only does it offer high investment limits, flexibility, and tax breaks. It also promises to have minimal impact on any eligibility for federal financial aid. It also means your offspring might not have to worry about finding a part-time job. 

Individual states run their own plans. You open an account, choose how to invest the money, and then make contributions using the money you’ve already paid the tax for. It promises tax-free growth, no income or capital gains tax on withdrawn funds, together with a state tax benefit on contributions made.

Why So Many Parents Are Choosing a 529 Savings Plan

There are several reasons why so many parents are choosing this option. First off, there are no limitations as to who sets up the plan and makes contributions. It could be a parent or guardian, grandparent, aunt, uncle, or a family friend who lives down the road. 

Another benefit is the minimal effect it has on any financial aid you might apply for. Just over 5% of the value of a 529 savings plan counts as a contribution. For example, you use Free Application for Federal Student Aid (FAFSA) and have $40,000 saved in your 529 savings plan. In that case, your aid is only going to be decreased by $2,256.

While a 529 savings plan is designed to cover the cost of children’s education, you don’t have to spend the money in this way. You can also change the beneficiary to another family member. The money can sit in the account for as long as you want, meaning you don’t have to withdraw it when the beneficiary reaches a certain age. 

In some states, seed money is an additional perk of this type of college savings plan. It might also be possible to have your contributions matched if you’re from a low or moderate-income family.

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The Downside of a 529 Savings Plan

The main disadvantage of this type of college savings plan is its lack of flexibility. Withdrawing money for qualifying expenses such as school books, computers, tuition costs at trade and vocational schools, isn’t a problem. If, however, you want to withdraw it for anything else, you can end up paying a 10% penalty on any earnings and owe income tax.

Some states even take back state income tax benefits on money not used for eligible expenses. 

Two Types of 529 Plans   

The 529 savings plans are made up of two main types:

Traditional Savings Plans – these are a state-sponsored savings account. Usually, an investment company manages them. You do, however, get to choose your investments from a range of different mutual funds. You can join this type of plan wherever you live in the US. 

Prepaid Tuition Plans – this is a plan which allows you to pay some of the future college costs now. The benefit of doing this is you’re able to lock in the price. The state guarantees these plans and makes them available at in-state public colleges. There is a prepaid tuition plan accepted by some private colleges called a Private College 529 Plan.

Both types of plans can grow tax-free, and there are no penalties or tax to pay. The only requirement is you spend the money provided on eligible college expenses. These expenses include:

  • Tuition
  • Fees
  • Room and board
  • Books 
  • Supplies
  • Required equipment

It’s also possible to use 529 plans to pay for elementary, secondary and post-secondary education expenses, private school tuition, and even homeschooling expenses. There is, however, a limit of $10,000 per year placed on these educational expenses. 

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How to Find the Best 529 Plan

As you might expect, not all 529 plans are created equal. Every state has its own 529 plan, but that doesn’t necessarily mean it’s the best one for you and your child. You might not realize, but you’re not obliged to go with your own state’s plan. You can choose another one or enlist the help of an advisor. Now that you appreciate the choice you have, here are some of the things you need to consider. For starters, people know the 529 as a Qualified Tuition Program or QTPs. 

Saving for College

Prepaid Tuition or Traditional Savings Plan?

You can find advantages and disadvantages in both and instances when they are the better choice. For example, a prepaid tuition plan is best for in-state further education. A traditional 529 college savings plan, on the other hand, is better for both in and out of state education, including state public and private schools. 

Another benefit of traditional education savings plans, when compared with prepaid tuition, is that you can apply it to many different qualified expenses. On the contrary, you can use prepaid plans only for tuition and fees. 

One last difference is that prepaid plans have minimal potential for growth. Meanwhile, a traditional plan offers far better growth potential and additional tax advantages.  

In or Out-of-State?

You’re not obliged in any way to pay into your own state’s 529 plan. Offers from individual states vary considerably. Some may offer better tax breaks than others. There may be advantages not offered across all states, and there may also be high fees that negate the benefits. 

It’s worth shopping around and seeing what other states are offering. Seeking the advice of an advisor is always something worth considering. 

Tax Considerations

These vary from state to state, and it’s worth investigating the rules. Your own state’s plan, for example, might only offer deductions or credits for contributions made to its plan. In other states, however, the deductions may apply to any program. 

Cost of the Plan

A 529 plan doesn’t come without any fees or charges. As with many features of a 529 plan, these can vary depending on the state. The costs you need to look out for include:

  • Account maintenance fees – charged if your balance falls below the required minimum or if one of the account investors lives out of state. There are, however, several different plans that don’t charge this fee.
  • Application or enrollment fees – some plans charge a setup or application fee, although not all of them.
  • Annual account fees – not all 529 plans charge that fee. However, some charge a flat fee while others charge based on the balance of the account. Several states waive this fee or offer a lower rate for residents, and there are some plans with no annual fees at all.
  • Management fees – They are two types, carrying flat or percentage-based fees. It’s a charge made for actively managed accounts. It can also involve certain classes of investment.
  • Fund-based fees – whether this fee is charged, or not, depends on the portfolio the 529 plan invests in. It’s usually a percentage-based fee. 

How much you have to pay varies considerably. It depends on the type of 529 plan you invest in and the state that operates the plan. The amount can also depend on whether you’re able to meet specific requirements.  

Customer Experience

Unless you’re an investment whiz, you probably want the plan to be very user-friendly. The website you have to use should be functional, flexible, and easy to understand. It also helps if you don’t need to submit vast amounts of paperwork. When you’re doing your research, spend some time finding your way around the plan’s website. Look for one that’s easy to navigate, find information, make an application, set up contributions, and start a rollover. Also, check whether it’s easy for other people to make contributions. 

Look for a Plan Yourself or Use the Services of a Broker?

When you’re looking for the best 529 plan, you can do it yourself or seek the help of a broker. If you’re concerned about costs, the cheapest option is to look for one yourself. A plan sold by an advisor tends to have higher annual fees. You’re also more likely to find yourself paying a commission on your contributions. If you haven’t got the time to spend doing research, learning about your state’s rules, an advisor-sold plan is an obvious choice. 

Financial Aid Incentives

There are some desirable financial aid provisions offered in certain states. You do, however, have to meet specific requirements. One example is the $500 to $1,500 scholarship funds provided in New Jersey. To be eligible, you have to invest for a minimum of four years in the NJBEST 529 plan and attend a New Jersey college. 

When deciding whether the financial aid incentives are worth it, carefully weigh them up against any extra fees or tax incentives that might apply. 

Do You Have an Investment Strategy?

What do you want from your 529 plan? How much of a risk are you willing to take? Your child’s age, budget, and the amount you can invest all impact the plan you choose. Would you prefer to play a part in managing your investment, or are you happy to let someone else make the decisions on your behalf? There are so many different options it’s going to pay to think about an investment strategy.

If you consider all your options very carefully and then find the plan you’ve chosen doesn’t work for you, don’t worry. One tax-free rollover of a 529 account is allowed every year. Don’t think you’re stuck with your first choice. There are other options. 

Saving for College

Don’t Wait for the Last Minute to Start Saving for College – Start Making Plans Today

Even if you’ve just brought your new bundle home don’t wait ten years or more before you start making a plan. The price of four years of a public college education is only going to rise. Estimates are putting the cost over $100,000 for public schools and $200,000 for a private college education. 

Let’s help you get the ball rolling with five tips. 

Don’t Wait a Few Years, Start Today

If you start saving for college today, you’ll need to save far less in the long run. Look closely at your current budget and see whether you’ve got anything to spare for your child’s college fund. Even if it’s just $50 every month, it’s better than nothing. You might be able to save more if your income goes up or your expenses decrease. If you’re not in a very favorable financial position right now, speak to grandparents, and see if they might be interested in contributing. 

It Pays to Have a Plan

To make a plan, you first have to work out how much your child’s education is going to cost. We’ve already tossed around a few figures and given some guidance on the things you’ll need to pay for. Now you can use this information and come up with some educated guesses. 

Don’t let your estimate put you off saving for college. There are ways you can pay your child’s education with the help of a scholarship, need-based financial aid, a grant, or a private student loan. Work out how much you can afford to save, start early, make regular contributions, and be smart with your investments. 

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Make Regular Contributions to the College Fund

If you want to save enough money, you must start early. You also need to invest regularly and aggressively. You might find it easier to make lots of smaller contributions every month rather than one annual contribution. Smaller monthly contributions also mean you’ll be able to take advantage of the compound interest more quickly. 

Be Wise with Your Investment Decisions

Not saving anything at all is the worse thing to do. Second to that is putting all your savings in a money market account, checking account, or basic savings account. Be wise with your investment, and you’ll reap the rewards. Watch your venture and its performance and make any necessary adjustments. Make your money work for you rather than the other way around. 

There’s always the option of some guidance from a financial planner. As well as providing some sound advice, they’ll also be able to manage and monitor the performance of your investments. 

Whether your child is still in diapers, about to start kindergarten, or already a teenager, it’s never too late to start planning and saving for their college education. Going to college isn’t something done for free, but the expense is worth it in the end. Knowing what the alternatives are, developing a plan, and investing wisely, are the best steps to take. You’ll be able to pay for some, and maybe even all, of your child’s college education.

Let us know about your experiences because first-hand experiences always provide valuable information to those willing to listen.

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  1. Tell me about my investment? and manage my account? Because I never give permission to anyone. Because someone hacked my account and move my assets into many different Company.


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