6 smart ways to save for your kids’ college education

Planning for your child’s future is exciting, and saving for college can be one of the biggest financial goals on that journey. With rising tuition costs and countless savings options, knowing where to start can feel overwhelming. But here’s the good news: There are multiple strategies to help make college savings manageable.

Common ways to save for your child’s college education

1. 529 college savings plans

A 529 plan is a state-sponsored savings plan designed specifically for education expenses. It offers tax-free growth when funds are used for qualified education costs like tuition, fees, books, and sometimes room and board.

Key features:

• Tax-free growth for qualified education expenses

• State tax deductions in some states

• High contribution limits (varies by state)

• Ability to change beneficiaries if needed

Pros:

• Significant tax advantages

• Low maintenance with age-based investment options

• Funds can be used nationwide

Cons:

• Non-qualified withdrawals face taxes and penalties

• Limited investment flexibility within the plan

2. Custodial accounts (UGMA/UTMA)

Custodial accounts allow adults to transfer assets to a minor until they reach adulthood (18 or 21, depending on the state).

Key features:

• Broad range of investment options (stocks, bonds, ETFs)

• No contribution limits, though large contributions may trigger gift taxes

• Money can be used for any purpose benefiting the child

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Pros:

• Maximum flexibility on how funds are used

• Simple to set up at most financial institutions

Cons:

• Counts as the child’s asset for financial aid, reducing eligibility

• Irrevocable: child gains control at adulthood

• No tax benefits specifically for education

3. Roth IRA

Primarily a retirement savings tool, Roth IRAs can be tapped for education expenses without early withdrawal penalties on contributions.

Key features:

• Tax-free growth

• Withdraw contributions anytime; earnings are tax-free if used for qualified expenses

• Annual contribution limit ($7,000 in 2024)

Pros:

• Dual-purpose: save for college or retirement

• Tax advantages

• Parental control stays intact

Cons:

• Contribution limits are lower than 529s

• Earnings withdrawals for non-qualified expenses may incur taxes

4. Brokerage account

A brokerage account offers ultimate flexibility for college savings but comes without specific tax perks.

Key features:

• Unlimited contributions

• Broad investment choices: stocks, ETFs, bonds, mutual funds, etc.

• No restrictions on how funds are used

Pros:

• Absolute flexibility for any expense

• No withdrawal penalties or usage restrictions

• Full control over how and when to invest

Cons:

• Taxable investment gains, dividends, and interest

• No education-specific tax benefits

• Higher risk if investments lose value

5. High-yield savings accounts (HYSA) and certificates of deposit (CDs)

Both high-yield savings accounts and CDs are conservative savings vehicles, best for short-term goals or supplementing an investment plan.

Key features:

• FDIC-insured up to $250,000 per account

• Earns more interest than traditional savings accounts

• CDs offer fixed interest rates for locked terms

Pros:

• Extremely low risk and stable

• Immediate liquidity with HYSAs; predictable returns with CDs

• Great for families wanting to safeguard a portion of college funds

Cons:

• Lower growth potential compared to investments

• CDs lock funds for a period, with penalties for early withdrawal

• May not outpace inflation, especially for long-term goals

6. Scholarships and financial aid

While not a savings method, scholarships and financial aid significantly reduce the financial burden of college.

Key features:

• Awarded based on merit, need, special skills, or affiliations

• Offered by schools, private organizations, nonprofits, and government agencies

• Includes grants, work-study programs, and loans (repayable)

Pros:

• Free money (grants, scholarships) that doesn’t require repayment

• Can substantially offset total college costs

• Widely available if families start early with research and applications

Cons:

• Highly competitive for merit-based scholarships

• Financial aid formulas consider income and assets, affecting eligibility

• Not guaranteed and requires time and effort to apply

How to choose the right college savings strategy

There’s no right or wrong way to save for college, but it can be overwhelming to sort through all of your choices. Think about these things when you’re deciding how to save for your kids’ college education. 

• Tax benefits: Look for plans with tax advantages like 529s or Roth IRAs.

• Flexibility: If you want funds to be available for non-education expenses, custodial or brokerage accounts offer more freedom.

• Control: Some accounts stay in the parent’s name; others transfer to the child.

• Impact on financial aid: Some accounts weigh more heavily than others in aid calculations.

• Contribution limits: Match the account to your savings ability.

How to supercharge your college savings

Keep these tips in mind when saving for college—it’ll help you save more!

• Start early: More time = more growth.

• Automate contributions: Set it and forget it.

• Set goals: Know your target number.

• Use windfalls: Bonuses or tax refunds can boost savings.

• Review often: Adjust as needed.

FAQs about saving for college

When should I start saving for college?

Now! The earlier, the better so that you can take advantage of compound growth.

What’s the best plan for college savings? 

It depends on your family’s needs. For instance, 529 plans are great for tax benefits while Roth IRAs offer flexibility.

Does saving for college hurt financial aid? 

Saving for college typically has a small impact on financial aid and is usually a smart move. College savings are viewed as assets, not income, and most of the weight in a FAFSA application is given to income. Parent-owned assets, like 529 plans, are assessed at a low rate—up to 5.64%—in federal aid calculations.

How much should I save for college? 

Most experts agree that you should aim to save for a third of expected costs, then fill gaps with aid and scholarships. Remember—it’s rare that a family will pay full price for college as at least 87% of families receive some sort of financial aid. 

Can my child contribute to their college savings? 

Yes! Your child can often contribute earnings from first jobs or birthday money to their college savings. 

What if my child doesn’t go to college? 

You can often save or use the funds for different things, but you should check with your specific plan. 529 accounts can be rolled over into Roth IRAs, have beneficiaries changed, or have some funds withdrawn penalty-free for qualifying purchases. 

Start thinking about it now

Saving for college isn’t one-size-fits-all, but starting now gives your child more opportunities in the future. With Greenlight, you can teach kids how to save, invest, and plan for big goals like college, giving them real-world financial skills that last a lifetime.

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*Investing involves risk and may include the loss of principal. Investments are not FDIC-insured, are not a deposit, and may lose value.

This blog post is provided "as is" and should not be relied upon as a substitute for professional advice. Some content in this post may have been created using artificial intelligence; however, every blog post is reviewed by at least two human editors.