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Parent’s Guide to College Savings

How to save money at every stage of their childhood and pave the road to higher education.

Two parents walk with their child in between them. They are smiling swinging the child by her arms. Behind them is a home with solar panels on the roof.

Saving for your child’s education is one of the best financial gifts you can give. It sets them up to enter the job market with more resources, allowing a head start on the journey toward financial security and adult responsibility.

Of course, saving enough for a college education is a monumental goal. For a child born in 2024, the projected cost of a four-year undergraduate degree at a public, in-state university in 18 years (which is to say, 2042) could be nearly half a million dollars. Even if they attend a twoyear community college or trade school, the cost of their education and helping them get on their feet as they enter their career can be steep.

In this article, we’ll propose a timeline for how to save for your child’s future education, depending on your child’s age.

Baby Steps: Start Early If You Can

If you thought of starting a college fund when you brought your newborn home from the hospital, you’re on the right track! While infants bring many new expenses, such as the cost of early childhood care, there’s no better time to start a college fund with whatever your budget allows. By starting early, your college savings fund will have years to grow. You might consider a tax advantaged investment program for college savings, such as a qualified tuition plan (more commonly called a “529,” due to the corresponding Internal Revenue Code) or a Coverdell education savings account (ESA).

If you don’t want to restrict your savings to a college education, consider socking away savings in a high-yield savings account like Growth Savings. That way, you’re still preparing for your child’s future, but the funds can be used with more flexibility, no matter what path they choose later in life. As a bonus, you can use the account to teach kids the power of compounding interest, using an online calculator to show them how the savings will grow over time.

A high-yield savings account like Growth Savings can play an important role in financial planning because:

  • Your funds are safe and secure. You can trust your money is safe at Forbright Bank, which is insured by the Federal Deposit Insurance Corporation (FDIC) up to the FDIC established limits.
  • Your earning potential is higher. With Growth Savings, you earn money on the money you save.
  • Your money is not locked in. You can access your savings without penalty and transfer money from your Growth Savings account into your checking account at any time with zero transfer fees.

Elementary School: Get a Healthy Habit Going

If you were paying for full-time childcare during the preschool years, your expenses could drop dramatically once your children enter elementary school. If childcare costs squeezed your college contributions in the early years, elementary school can be an opportunity to make up for lost time.

If you didn’t open a tax-advantaged college savings account before your child started school, consider doing so now.

Let’s look at the differences between Coverdell ESAs and 529 plans:

Account TypeCoverdell Education Savings Account529 Account
Income CapsUp to $110,000 for single taxpayers and up to $220,000 for married couples filing jointlyNone
Contribution Limits$2,000 per yearNo annual contribution limits, but each state has a lifetime contribution limit, ranging from $235,000 to $550,000
Disbursement RulesAccount funds must be fully withdrawn within 30 days after the beneficiary reaches age 30, unless the beneficiary has special needs.There are no time or age limits for using 529 funds and if unused by the beneficiary, they can be passed down to other family members.
Tax-Free WithdrawalsAllows you to choose any investment the brokerage offers, including stocks, bonds, options, and exchange-traded fundsDepends on the 529 provider, typically mutual funds
Tax-Free WithdrawalsQualified education expenses for kindergarten through collegeQualified expenses for college, and up to $10,000 for primary or secondary school tuition

Middle School: Build Mutual Ownership

Early teen years are a good time to get your child invested in their own financial future. If you opened a high-yield savings account when your child was younger (or decide to do so now), you can encourage them to contribute to it with cash they earn mowing lawns, babysitting, or doing extra chores. At this age, the actual amount may be less important than the ownership they take over their journey toward life after high school.

High School: Make the Final Sprint

Healthy discussions at this age can help your teen maintain realistic expectations for the type and location of school they can attend. This is the time for your teenager to lean into academics or extracurricular activities to increase their chances of getting a scholarship. An estimated $100 million in college scholarships goes unclaimed each year, so those applications are a worthwhile exercise.

Most scholarships are partial and will only offset the costs of an education rather than cover it in full. Even so, you can remind your teen that the difference between whatever you’ve saved, and the net cost of postsecondary education will either mean limiting choices or taking on more student loan debt (or both).

Your teen should be as invested as you in reducing that difference. Ongoing conversations can also set your teen up for success with healthy financial habits more broadly, whether that’s establishing a monthly budget or responsible credit card use.

Disclaimer: This article is for general information and education only. It should not be considered financial or tax advice.

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