How do I save for my kid's college?

The cost of college is rising at twice the rate of inflation. Starting a college fund the day your child is born is a gift of freedom for both of you.

A graduation cap sitting on a stack of books and a piggy bank

The 529 Plan: The Gold Standard

The 529 College Savings Plan is the most powerful tool for education. It works like a Roth IRA for school: you contribute after-tax money, it grows tax-free, and you pay zero taxes when you take it out for 'qualified education expenses' (tuition, books, room and board). Many states also give you a state tax deduction just for contributing. If your child chooses not to go to college, the SECURE 2.0 Act now allows you to roll over up to $35,000 from a 529 into that child's Roth IRA, ensuring the money isn't 'wasted' if they take a different path in life.

The 'Oxygen Mask' Rule

Before you put a single dollar into a college fund, you must be 100% on track for your own retirement. There are loans for college; there are no loans for retirement. Your child can work part-time, get scholarships, or attend a community college to lower their costs. You cannot 'part-time' your way through age 80. Prioritizing your child's education over your retirement often leads to the child having to support you later anyway. Secure your own mask first.

Alternative Savings Vehicles

UTMA/UGMA: These are custodial accounts. The money belongs to the child. The upside is more flexibility (can be used for things other than school), but the downside is it counts heavily against them on financial aid (FAFSA) applications.
Brokerage Account: Some parents just save in a normal taxable account. While you pay taxes, you maintain 100% control of the money if the child decides to start a business instead of going to school.
Roth IRA: You can use your own Roth IRA for educational expenses tax-free, with the added benefit that the money counts as retirement assets on FAFSA applications.

The Power of Grandparents

529 plans are great for family gifting. Grandparents can contribute large sums to a 529 and, under current rules, it no longer impacts the student's eligibility for financial aid as much as it used to. It's a great way for extended family to contribute to the child's future instead of buying more plastic toys that will be forgotten in a week.

Real Life Examples

Mrs. Williams

Teacher • $60k Income • 20% Savings Rate

Mrs. Williams started a 529 plan when her daughter was 6 months old. By contributing just $100 a month, she's built a fund that will cover 100% of the tuition at their local state university.

Mr. Johnson

Project Manager • $90k Income • 10% Savings Rate

Mr. Johnson saves for college in a normal savings account. He gets zero tax benefits and his money is losing value to inflation, making it much harder to keep up with rising tuition costs.

Mr. Smith

Sales Executive • $120k Income • 5% Savings Rate

Mr. Smith stopped his 401(k) contributions to put money in a college fund. He's now behind on retirement and his child might still need loans because he didn't start early enough to let the money grow.