College Savings Strategies Parents Should Know

The cost of college has been rising for decades, making it more important than ever for parents to start planning early. While student loans are an option, saving in advance can help reduce financial stress and give your child a strong start without the burden of heavy debt. Fortunately, there are several smart strategies parents can use to build a solid college fund.

Starting Early: The Power of Time and Compound Interest

One of the biggest advantages in saving for college is time. The earlier you start, the more you can take advantage of compound interest, which allows your money to grow over time. Even small contributions made consistently can add up significantly by the time your child is ready for college.

For example, if you save $100 per month from the time your child is born, assuming a 7% annual return, you could accumulate over $38,000 by the time they turn 18. Waiting just a few years to start could mean needing to save much more per month to reach the same goal.

529 Plans: A Tax-Advantaged Way to Save

A 529 college savings plan is one of the best tools available for parents. These state-sponsored plans allow you to:

Invest money tax-free as long as the funds are used for qualified education expenses.
Use the savings for tuition, room and board, books, and even K-12 education in some cases.
Choose from a variety of investment options to help your savings grow over time.

Many states even offer tax deductions or credits for contributions to a 529 plan, making it an even more attractive option. Plus, anyone—including grandparents—can contribute, helping to grow the fund faster.

Coverdell Education Savings Accounts (ESAs): Another Tax-Free Option

Similar to a 529 plan, a Coverdell ESA allows tax-free growth when used for educational expenses. The key differences are:

The contribution limit is $2,000 per year per child.
The funds can be used for both K-12 and college expenses.
There are income limits for eligibility, making it less accessible for high earners.

While the contribution limit is lower than a 529 plan, Coverdell ESAs can be a good supplement to other savings strategies.

Using a Roth IRA for College Savings

Many parents don’t realize that a Roth IRA, typically used for retirement, can also serve as a college savings vehicle. Contributions to a Roth IRA can be withdrawn tax- and penalty-free for education expenses, though earnings may be subject to some restrictions.

The benefit of using a Roth IRA is flexibility—if your child doesn’t need the funds for college, you can keep the money invested for your own retirement instead. However, contribution limits apply, and using the money for college means losing out on years of retirement growth.

Setting Realistic Goals Based on Expected Costs

Not every parent will be able to cover 100% of college expenses, and that’s okay. Instead of aiming for a specific dollar amount, consider:

What percentage of college costs you want to cover (e.g., 50%, full tuition, or just living expenses).
Public vs. private school tuition differences and how they impact savings goals.
Scholarships, grants, and part-time work that can help bridge the gap.

Using online college cost calculators can help estimate how much you need to save based on your goals and time horizon.

Encouraging Contributions from Family and Gifts

College savings don’t have to fall entirely on parents. Grandparents, relatives, or even family friends can contribute to a 529 plan or other savings accounts instead of giving traditional gifts for birthdays or holidays. Many states allow others to gift contributions directly into a child’s college savings account, making it an easy way to build up funds over time.

Balancing College Savings with Other Financial Priorities

While saving for college is important, it shouldn’t come at the expense of your own financial health. Many parents make the mistake of prioritizing college savings over their retirement funds, but the reality is—your child can take out student loans, but you can’t take out a loan for retirement.

Make sure to:

Pay off high-interest debt before aggressively saving for college.
Contribute to your own retirement accounts so you’re not sacrificing your future.
Find a balance that allows you to save for college without jeopardizing your long-term financial security.

Planning Ahead Can Make College More Affordable

College tuition might seem overwhelming, but with the right saving strategies, tax advantages, and planning, you can ease the financial burden. Whether you choose a 529 plan, Roth IRA, or a mix of savings tools, the key is starting early and staying consistent. Even if you can’t cover all expenses, having some savings in place will give your child a head start and more options when it’s time to make college decisions.