How to Save for College: 5 College Savings Strategies for Families
September is College Savings Month, making it a great time for parents and grandparents to review how they're preparing for future education costs.
But figuring out how to save for college can bring up a lot of questions. How much should you save? Should you use a 529 college savings plan? When should you start? And how do you save for your child's education without sacrificing retirement or other important financial goals?
The good news is that you don't have to have every future college expense covered today. A thoughtful college savings strategy can help you prepare while keeping your family's larger financial picture in focus.
Here are five things to consider as you build or review your college savings plan.
1. Start Saving for College as Early as You Can
When it comes to saving for college, time can be one of your biggest advantages.
Starting earlier gives your savings more time to potentially grow and may reduce the amount you need to contribute later. But if you haven't started yet, don't let that discourage you.
You don't need a large lump sum to begin. Smaller, consistent contributions can add up over time.
The most important thing is to choose a savings amount that works within your overall financial plan.
College savings shouldn't come at the expense of maintaining an emergency fund, managing high-interest debt, or adequately preparing for retirement.
Remember, there may be several ways to help fund a child's education, but you can't borrow money to fund your retirement.
2. Understand 529 College Savings Plans
One of the most popular tools for saving for education is a 529 college savings plan.
A 529 plan is a tax-advantaged account designed to help families save for qualified education expenses. Contributions are generally made with after-tax dollars, and investments within the account have the opportunity to grow tax-deferred.
Withdrawals are generally free from federal income tax when the money is used for qualified education expenses, subject to applicable rules and limitations.
Depending on the plan and applicable state laws, additional tax benefits may also be available.
However, a 529 plan isn't automatically the right answer for every family. Your income, timeline, other savings, financial goals, and expected education expenses can all influence which college savings strategy makes sense.
Rather than looking at a 529 in isolation, consider how it fits into your overall financial plan.
3. Decide How Much of College You Want to Pay For
One of the most important steps in creating a college savings plan is defining your actual goal.
Do you want to pay for 100% of your child's college education? Half? Tuition only? Are you planning for an in-state public university, private college, community college, or another type of education?
There isn't one correct answer.
Some parents want to cover as much as possible. Others expect their child to contribute through scholarships, grants, work, financial aid, or student loans.
Establishing a realistic target can make saving for college feel much more manageable.
Instead of simply asking, "How much does college cost?" consider asking, "How much of that cost do we want our financial plan to cover?"
That distinction can make a significant difference in your savings strategy.
4. Consider How Grandparents Can Help With College Savings
Parents aren't the only family members who may want to contribute toward a child's education.
Grandparents and other relatives can also contribute to a child's college savings, including through a 529 plan.
For some families, helping with education expenses can become part of a broader gifting or estate planning strategy. This can be especially important when grandparents want to help the next generation while also considering their own financial and legacy goals.
There are specific tax, gifting, estate planning, and financial aid considerations that may apply, so larger contributions should be evaluated within the family's broader financial strategy.
5. Review Your College Savings Strategy Regularly
Your college savings plan shouldn't be something you establish once and never look at again.
As your child gets older, several things can change. Your income may increase, college costs may rise, your child may have a clearer idea of where they want to attend school, and your other financial priorities may evolve.
Consider reviewing your college savings strategy regularly and asking:
How much have we saved for college so far?
How much are we currently contributing?
Are we on track for the amount we want to provide?
How many years remain until college begins?
Has our expected college budget changed?
Are the investments appropriate for our current timeline?
How does college savings affect our retirement goals?
Could grandparents or other family members contribute?
Making smaller adjustments over time may be easier than trying to close a significant college savings gap shortly before tuition bills begin.
How Do You Balance College Savings and Retirement?
For many parents, this may be the most important question of all.
It's natural to want to give your children every opportunity possible, but funding college shouldn't necessarily come at the expense of your own long-term financial security.
Retirement and college are competing goals with very different timelines and funding options.
That's why determining how much to save for college shouldn't happen in a vacuum. Your strategy should take into account your retirement savings, cash flow, investments, taxes, emergency reserves, debt, and other financial priorities.
Sometimes the right answer isn't simply to save more. It's determining where your next dollar can have the greatest impact.
Frequently Asked Questions About College Savings
When should I start saving for my child's college?
Generally, starting earlier gives your money more time to potentially grow. However, it's never too late to evaluate your options. The appropriate strategy will depend on how much time you have before college, your available cash flow, and your other financial goals.
How much should I save for college each month?
There isn't one monthly savings amount that works for every family. Your target should consider your child's age, expected education costs, how much of those costs you want to cover, what you've already saved, and your other financial priorities.
Is a 529 plan the best way to save for college?
A 529 plan can offer valuable tax advantages for qualified education expenses, but whether it's the best choice depends on your individual circumstances. Other savings and investment accounts may also play a role in your overall strategy.
Can grandparents contribute to a 529 plan?
Yes. Grandparents and other individuals can generally contribute to a 529 plan, subject to applicable plan rules and tax considerations. Families making significant contributions should consider how those gifts fit within their broader tax and estate planning strategies.
Should I save for retirement or my child's college first?
Both are important, but parents should be careful about sacrificing their own long-term financial security to pay for college. Students may have access to scholarships, grants, loans, and other ways to fund education. Retirement doesn't offer the same borrowing options.
Make College Savings Part of Your Financial Plan
College Savings Month is a helpful reminder to check your progress, but preparing for education expenses is only one piece of your family's financial plan.
College savings should work alongside your retirement strategy, investments, cash flow, tax planning, insurance, estate planning, and other long-term goals.
At Bridger Financial Group, we help families look at those pieces together.
Whether you're opening your first college savings account, wondering if you're saving enough, or trying to balance college costs with retirement, a financial plan can help you better understand where you are today and what steps may make sense moving forward.
Want to see how college savings fits into your family's financial plan? Contact Bridger Financial Group to start the conversation.
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This material is provided for educational and informational purposes only and is not intended as individualized investment, tax, or legal advice. 529 plan rules, tax treatment, and eligibility requirements may vary. Investors should consider a plan's investment objectives, risks, charges, expenses, and applicable state tax benefits before investing.