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How to Start Saving for Your Child's College Now

Helping your child get the schooling they need to build their own financial security later in life is one of the best gifts you can give them. There are many ways to approach paying for your child’s education, including financial aid, scholarships and grants.

However, the only sure bet is to have savings set aside for their education. Not sure where to start? While the task may seem impossibly daunting, preparation is power. The first step is to create a plan. Here are a few things you’ll need to know.

First things first--prioritize.

As important as it is to save for your children to attend college or trade school, don’t neglect your own debts, savings, and retirement. It’s key that you first manage your personal finances (including paying off credit card and student loan debt).

If you are in a position to continue contributing to your own 401k and emergency savings and also put aside money for college, wonderful! (If not, check out some of your child’s other debt-free options to pay for school .)

When should you start saving?

The sooner, the better. Building an educational savings or investment account early in life provides the most opportunities for your investment to grow.

Every little bit counts.

How much should you save? That answer is different for everyone, but it can be helpful to use a college expenses calculator like this one to get an idea of what to expect.

Just remember that even small contributions have the potential to build into substantial savings if invested wisely. Accept that you might not be able to save everything your child will need to finish school. It’s okay! Having the funds to help with a portion of tuition or even supplies and books will be a godsend for your student-to-be. Every little bit helps.

Make it easy to save.

Saving money is hard work. It takes dedication, will power, and careful planning. So, knowing that the task at hand is already challenging enough, do what you can to make it easy on yourself. Some ideas:

  • Review your budget regularly and make adjustments as your income fluctuates.
  • Set up automatic withdrawals directly from your paycheck.
  • Ask relatives to contribute educational funds as holiday or birthday gifts.
  • Read books about managing your personal finances.
  • Check in with your goals frequently, and realign if you get off course.

The best options for educational savings.

While there may be other investment options available, using an account specifically designed for schooling expenses is the best way to go. That way you don’t miss out on any of the benefits (lower fees, tax breaks, fewer risks). Here are a few of your best options:

  1. 529 Savings Plan – An investment account intended to make saving for education simple and cost-effective, relatives and friends can deposit funds directly into a 529 account, making it an easy way to contribute to a child’s future. 529 plan gains are tax-deferred, and funds can be withdrawn without paying taxes so long as they are used for approved school expenses. Just make sure you shop around for the lowest fees possible.
  2. Education IRA - An Educational Savings Account (ESA) enables families that meet the income limit to contribute up to $2,000 each year toward a student’s education. The plan must be established before the beneficiary is 18, but there are a variety of investment options, and any savings grow tax-free. Plus, so long as the money is used to pay for educational expenses, it can be withdrawn tax-free.
  3. Uniform Transfer or Uniform Gift to Minors Act (UTMA or UGMA) Accounts – UTMAs and UGMAs are not specifically designed to save for college expenses, but they do provide tax advantages to anyone who contributes to them. Both accounts are set up and managed by a custodian on behalf of the beneficiary until they turn 18 (or 21, depending on the plan.) You can learn more about the differences between a UTMA and UGMA custodial account here .

It is worth it.

A final note—if you’re worried that having savings for your child’s college expenses will ultimately hurt your student’s ability to get financial aid—don’t. College savings have an extremely marginal effect on your overall aid eligibility. Colleges want you to help pay for school, and that is reflected when financial aid is calculated. So save all you can—your future graduate will thank you!

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