How do I start saving for my child's college education? 529 plan vs. other options?

For most families, a 529 college savings plan is the best place to start because it combines tax advantages with flexibility. That said, it's not the right choice for every dollar you save. The best approach depends on your goals and financial priorities.

Here's how the main options compare:

Why many parents choose a 529

A 529 plan allows your investments to grow tax-free, and qualified withdrawals are generally free of federal tax. Qualified expenses can include college tuition, fees, books, certain room and board costs, and other eligible education expenses. Many states also offer a state income tax deduction or credit for contributions.

Recent rules have also made 529 plans more flexible. For example, under certain conditions, some unused funds can be rolled into the beneficiary's Roth IRA, subject to lifetime and annual limits and other eligibility requirements.

When another option might make more sense

You might prioritize another account if:

• You're still building your emergency fund.
• You have high-interest debt.
• You're behind on retirement savings. In many cases, it's better to secure your own retirement first because there are loans for college, but not for retirement.
• You want money that could be used for a home, business, or other non-education goals.

A practical strategy

A simple approach many families use is:

1. Build an emergency fund (typically 3–6 months of expenses).
2. Contribute enough to retirement accounts to capture any employer match.
3. Open a 529 plan and set up automatic monthly contributions—even $25–$100 per month can add up over many years through compound growth.
4. Increase contributions whenever your income rises or you receive bonuses or tax refunds.

Should you use your state's 529 plan?

Not necessarily. You can generally invest in another state's plan. However, check whether your home state offers a tax deduction or credit for using its own plan, as that benefit can make it the better choice. Compare:

• State tax benefits
• Investment options
• Fees
• Performance history

If you tell me:

• your child's current age,
• your state of residence, and
• roughly how much you'd like to save each month,

I can suggest a savings strategy and estimate how much you could accumulate by the time your child reaches college age.

Starting a college fund for your child can feel overwhelming, but breaking it down into actionable steps makes it manageable.

How to Start Saving for College

1. Determine your target amount: Decide what portion of college you want to fund. A common benchmark (like Fidelity’s "2K rule") suggests aiming to save $2,000 for each year of your child's age, though aiming to cover 50% to 70% of an in-state public university is a solid baseline.
2. Open a dedicated account: The earlier you start, the more time compounding interest has to work. Opening an account takes as little as $25 to $50 depending on the program.
3. Automate monthly contributions: Treat the college fund like a fixed monthly bill. Even setting aside $50 or $100 a month from birth adds up significantly over 18 years.
4. Involve family members: Let grandparents, aunts, and uncles know that instead of physical toys or gifts for birthdays and holidays, they can contribute directly to the child's education fund.

529 Plan vs. Other Options

1. 529 College Savings Plans (The Gold Standard)

• How it works: State-sponsored, tax-advantaged accounts specifically designed for education. You contribute after-tax dollars, but your investment grows tax-free, and withdrawals are 100% tax-free if used for qualified expenses.
• Pros: High lifetime contribution limits (often $500,000+ depending on the state), potential state income tax deductions for contributions, and flexibility to change the beneficiary to another family member if the original child doesn't go to college. Unused funds can also roll over up to a lifetime cap of $35,000 into a Roth IRA for the beneficiary. Qualified expenses now extend past college to trade schools, apprenticeships, and limited K-12 tuition.
• Cons: If you use the money for non-educational, non-qualified expenses, you'll face ordinary income tax plus a 10% penalty on the earnings.

2. Custodial Accounts (UGMA / UTMA)

• How it works: Brokerage accounts set up in the child's name with an adult as custodian.
• Pros: Ultimate investment flexibility (can buy individual stocks, real estate, or any mutual fund) and no restrictions on how the money is spent—it doesn't have to be used for education.
• Cons: Once the child reaches the age of majority (18 or 21 depending on the state), legal control of the entire pot of money transfers completely to them, and they can spend it on anything they want. It also counts heavily against financial aid eligibility since it is considered the student's asset.

3. Coverdell Education Savings Accounts (ESAs)

• How it works: Similar to a 529 plan with tax-free growth and withdrawals for education, but functions more like a trust.
• Pros: Broad investment choices (individual stocks, bonds) and covers both K-12 and college expenses.
• Cons: Strict annual contribution limit of only $2,000 per beneficiary and income restrictions on contributors prevent high earners from utilizing them.

4. Roth IRA

• How it works: Using a personal Roth IRA primarily for retirement, which allows you to withdraw your original contributions at any time tax- and penalty-free.
• Pros: Incredible flexibility; if your child doesn't need the money for college, the funds remain safely tucked away for your own retirement. Withdrawals for college use are also exempt from the 10% early withdrawal penalty on earnings.
• Cons: Low annual contribution limits compared to 529 plans, and prioritizing your child's college over your own retirement can derail your long-term financial security.

Real-World Perspectives

My state has a great state-tax deduction for using their specific 529 plan, so it was a no-brainer for us. Even if they don't use it all, the Roth IRA rollover rule gives me peace of mind that the money isn't trapped.

We did a mix of a 529 for the main bulk of it and a standard brokerage custodial account just in case they wanted to use the money for a first car or a non-traditional path where a 529 penalty might hurt.

If you'd like to narrow this down, tell me:

• What state do you live in? (To check for local 529 tax perks)
• How old is your child right now?

I can help you estimate a monthly savings goal based on those details.

How to Start Saving

1. Prioritize your own retirement first , because students can borrow for college, but you cannot take out loans for retirement.
2. Determine your target amount by considering public or private tuition paths and setting a realistic monthly contribution goal.
3. Automate your contributions by setting up a recurring transfer straight from your paycheck or bank account so the habit stays consistent.
4. Enlist family members like grandparents, aunts, and uncles to redirect milestone gifts (birthdays, holidays) directly into the college fund.

529 Plan vs. Other Options

• 529 College Savings Plan:
  • Pros : Earnings grow tax-free, and withdrawals are completely tax-free if used for qualified expenses (tuition, room/board, books, equipment, and up to $20,000 per year for K-12 tuition). Unused funds can easily be transferred to another family member or rolled over up to a lifetime $35,000 limit into a Fidelity Roth IRA for the beneficiary.
  • Cons : Investments are restricted to the portfolios selected by the specific state plan, and non-qualified withdrawals face income tax plus a 10% penalty on earnings.
• Coverdell Education Savings Account (ESA):
  • Pros : Offers total freedom over investment choices and covers both K-12 and higher education costs.
  • Cons : Extremely low annual contribution limit of $2,000 per child and strict income caps for contributors.
• Custodial Accounts (UGMA/UTMA):
  • Pros : Maximum flexibility on how the money is spent; it doesn't have to be used for education.
  • Cons : The child gains absolute control of the assets at the age of majority (18 or 21 depending on the state), and these accounts count heavily against financial aid eligibility compared to parent-owned 529 plans.
• Roth IRA:
  • Pros : Contributions (the principal you put in, not the earnings) can be withdrawn at any time penalty-free for college costs. If the child doesn't go to college, the money stays safely locked away for your own retirement.
  • Cons : Low annual contribution limits and pulling money out for college deprives your own future retirement growth.
• Taxable Brokerage Account:
  • Pros : Ultimate flexibility with zero restrictions or penalties on how or when you spend the money.
  • Cons : No tax advantages or breaks whatsoever.

Community Experiences

Saving Strategies

“529 plans can be a good option if you have money left over after funding your retirement.”

If you'd like to narrow this down, tell me:

• What is your child's current age?
• Are you targeting an in-state public or private university?

I can help you estimate a monthly savings target or evaluate your home state's 529 plan tax perks.

The best approach depends on where you live.

• If you're in the United States, a 529 plan is usually the first account to consider because of its tax advantages.
• If you're in Canada (your location appears to be Canada), the closest equivalent is a Registered Education Savings Plan (RESP), which is generally the best starting point because it can include valuable government grants.

If you're in the U.S.: 529 plan vs. other options

For many U.S. families, a simple strategy is:

1. Contribute enough to retirement accounts first.
2. Open a 529 and invest monthly.
3. Use a low-cost age-based portfolio if you prefer a hands-off approach.

If you're in Canada: RESP vs. other options

An RESP is generally the best place to begin because:

• Your investments grow tax-deferred.
• The federal government can add the Canada Education Savings Grant (CESG) to eligible contributions.
• Some families also qualify for the Canada Learning Bond (CLB).
• Certain provinces offer additional incentives.

A common strategy is to contribute regularly throughout the year, aiming to maximize available grants if your budget allows.

How much should you save?

There's no universal target. Consistency matters more than a large initial contribution.

For example:

• $50/month can build a meaningful education fund over 18 years.
• $100–250/month gives many families a stronger chance of covering a substantial portion of future education costs, especially if invested in diversified stock and bond funds.

Which should you choose?

• U.S. resident: A 529 plan is usually the default recommendation unless you have a specific reason to need another account.
• Canadian resident: An RESP is usually the first account to open because of the government incentives.

If you tell me:

1. Which country you live in (Canada or U.S.), and
2. How old your child is,

I can suggest a savings strategy and contribution amount tailored to your situation.

For most families, a 529 college savings plan is the best place to start. It combines tax advantages, high contribution limits, and flexibility that other education savings accounts often can't match. That said, the right choice depends on your goals, income, and whether you're also prioritizing retirement.

Here's how the main options compare:

Why many parents choose a 529

A 529 plan is designed specifically for education savings.

Key benefits include:

• Investments grow tax-free.
• Withdrawals are tax-free when used for qualified education expenses.
• You remain in control of the account.
• You can usually change the beneficiary to another eligible family member if plans change.
• Recent law changes have made 529s more flexible, including limited rollovers of unused funds to the beneficiary's Roth IRA if specific requirements are met.

When another option might make more sense

A different account could be worth considering if:

• You aren't sure the money will be used for education. A taxable brokerage account gives complete flexibility.
• You want your child to have unrestricted ownership of the money. A UGMA/UTMA account may fit, though it comes with tradeoffs.
• You're behind on retirement savings. It's often wise to prioritize retirement first—you can borrow for college, but not for retirement.
• You qualify for and specifically want a Coverdell ESA. These can offer broader investment choices, but the contribution limits and income restrictions mean they're less useful for many families today.

A simple strategy that works well

If you're just getting started:

1. Build an emergency fund if you don't already have one.
2. Contribute enough to your retirement plan to capture any employer match.
3. Open a 529 plan and contribute a consistent monthly amount—even $25–$100 per month can add up over 18 years thanks to compounding.
4. Increase contributions whenever your income grows or your child receives gifts from relatives.

Don't overlook your state's benefits

Even if you can invest in almost any state's 529 plan, your home state may offer a state income tax deduction or credit for contributions. That benefit alone can make your own state's plan the best first choice.

If you tell me:

• your state,
• your child's current age, and
• about how much you'd like to save each month,

I can suggest a practical savings strategy and estimate how much it could grow by the time your child starts college.

Starting to save for a child's college education involves picking an account type, setting up automatic contributions, and choosing investments, with 529 plans generally considered the premier option due to their strong tax benefits. You can open a 529 plan with as little as $10 to $1,000 depending on the state.

Top Ways to Start Saving

1. Open a 529 Plan: These state-sponsored plans offer tax-deferred growth and tax-free withdrawals for qualified expenses (tuition, room & board, books).
2. Automate Contributions: Set up monthly contributions from your bank account to make saving consistent and disciplined.
3. Invite Family to Contribute: Utilize gifting features for birthdays or holidays, allowing others to contribute directly to the 529.
4. Consider "Superfunding": In 2026, you can contribute up to $19,000 per year ($38,000 for married couples) without triggering gift taxes, or front-load five years of gifts at once ($95,000-$190,000).

529 Plans vs. Other Options

While 529 plans are popular, they are not the only option. The best choice depends on your need for flexibility, tax breaks, and investment control.

• 529 Plans (Best for tax-free growth):
  • Pros: Tax-free growth and withdrawals (federal, and often state) for education. High contribution limits (up to $550,000+ total). Covers K-12 (up to $10k/year), college, and trade schools. Unused funds can be rolled over to a Roth IRA ($35,000 lifetime limit).
  • Cons: Non-qualified withdrawals are taxed and penalized 10%.
• Coverdell ESA (Best for small, specific savings):
  • Pros: Offers broader investment options than 529s.
  • Cons: Limited to $2,000 in contributions per year per child. Cannot contribute after age 18.
• UGMA/UTMA Custodial Accounts (Best for ultimate control):
  • Pros: No contribution limits and funds can be used for anything.
  • Cons: Assets belong to the child, and they gain control at 18/21, potentially affecting financial aid more than 529s. No tax-deferred growth.
• Roth IRA (Best for dual retirement/college planning):
  • Pros: Flexibility to use for retirement or college.
  • Cons: Contributions are limited ($7,500/year in 2026, $8,600 if over 50), and withdrawals must be carefully managed to avoid taxes.
• High-Yield Savings/Brokerage Accounts:
  • Pros: Total flexibility and liquidity.
  • Cons: No tax advantages.

Frequently Asked Questions

• What if my child doesn't go to college? You can change the beneficiary to another family member, use it for yourself, use it for trade schools, or roll up to $35,000 over to a Roth IRA for the beneficiary.
• Can I open a plan in another state? Yes, you can use any state's 529 plan, but check for state tax deductions for using your own state's plan.
• How much should I save? It's often recommended to start with $600-$800 per month, but any amount is beneficial to start early.

To provide more tailored advice, I can:

• Tell you which state-sponsored plans have the lowest fees.
• Explain how to shift investment strategies (e.g., stocks to bonds) as your child gets older.
• Help you compare the financial aid impact of a 529 vs. a custodial account.

Let me know what you'd like to explore next!

Starting to save for a child's college education involves picking an account that balances tax advantages, investment growth, and flexibility. 529 plans are widely considered the best option, but alternatives like Roth IRAs or UGMA/UTMA accounts may fit specific needs.

Steps to Start Saving

1. Open a 529 Plan: The most popular choice, offering tax-deferred growth and tax-free withdrawals for qualified expenses (tuition, fees, room & board, books, computers).
2. Research State Tax Benefits: Many states offer tax deductions or credits for contributions to their state-specific plan.
3. Compare 529 Plans: You can pick any state's plan, regardless of where you live. Top choices include my529, T. Rowe Price 529 , and NC 529 Plan , as shown on Saving for College.
4. Set Up Automatic Contributions: Starting early with a manageable amount, such as $300–$500 per month, can significantly impact the final savings amount.
5. Utilize Flexible Options: The 529 can be used for trade schools and up to $10,000 for private K-12 tuition per year.

529 Plan vs. Other Options

• 529 Plans: Best for tax-free growth and high contribution limits (often $200k+). Money can be transferred to another family member if the original beneficiary doesn't use it.
• Roth IRA: Offers flexibility to use for retirement or education. Contributions can be withdrawn anytime, but earnings used for non-qualified expenses may face taxes and penalties.
• Coverdell ESA: Similar to a 529, but with a low annual contribution limit of $2,000 per beneficiary.
• UGMA/UTMA Custodial Accounts: These allow you to invest, but the assets become the child's property at 18 or 21, and they do not have the same tax advantages as 529s.
• Brokerage Accounts: High flexibility, no contribution limits, but earnings are subject to annual capital gains taxes.

Common Questions & Tips

• What if the child doesn't go to college? You can change the beneficiary to another family member. Additionally, up to $35,000 can be rolled over to a Roth IRA for the child over their lifetime, provided the account has been open for 15 years.
• What if I have multiple kids? You can open one plan and share it, or have separate plans. A 10-year gap in kids can be handled by changing beneficiaries.
• Impact on Financial Aid: 529 plans are considered parents' assets, which has a smaller impact on financial aid eligibility compared to student-owned assets like UGMA/UTMA accounts.

To help you choose the best option, I can:

• Compare the specific 529 plans of any state you are considering
• Calculate estimated costs for a public vs. private university
• Detail the rules for using a Roth IRA for education

What is the age of your child, and what is your primary concern (e.g., maximizing growth, tax savings, or flexibility)?

For most families, a 529 plan is the best place to start. It combines tax advantages, relatively high contribution limits, and flexibility that has improved in recent years.

Here's how the main options compare:

Why many parents choose a 529 plan

A 529 plan offers several advantages:

• Investments grow tax-free.
• Qualified withdrawals for education expenses are federally tax-free.
• Many states offer a state income tax deduction or credit for contributions (rules vary).
• You remain in control of the account rather than the child.
• If one child doesn't use the money, you can often change the beneficiary to another qualifying family member.
• Recent rule changes also allow certain unused funds to be rolled into the beneficiary's Roth IRA (subject to eligibility requirements and lifetime limits), reducing the risk of "over-saving."

How much should you save?

You don't need to fully fund four years of college to make a difference.

For example:

• Saving $100/month from birth can grow substantially over 18 years.
• Increasing contributions whenever you receive raises or bonuses can have a meaningful impact because of compounding.
• Starting early is generally more important than starting with a large amount.

Investment strategy

Many parents use an age-based portfolio, which:

• Invests more aggressively while the child is young.
• Gradually shifts toward more conservative investments as college approaches.

If you're comfortable managing investments yourself, many plans also offer individual index fund options.

When another option might make more sense

A UTMA/UGMA account may be better if you want the money available for purposes beyond education, such as:

• Starting a business
• Buying a car
• A home down payment

The tradeoff is that the child eventually gains legal control of the assets, and those assets can affect financial aid differently.

A Coverdell ESA can be useful for some families, particularly if you want to pay for K–12 education expenses and meet the income requirements, but its low contribution limit means it's often used alongside—not instead of—a 529 plan.

A practical approach

If you're just getting started:

1. Open a 529 plan.
2. Set up automatic monthly contributions—even $25–$100/month is a solid beginning.
3. Choose a low-cost age-based investment option if you don't want to manage allocations yourself.
4. Increase your contributions over time as your budget allows.

If you tell me:

• your child's current age,
• your state (since state tax benefits vary), and
• roughly how much you'd like to save each month,

I can help estimate how much the account could grow by the time your child starts college and discuss which 529 plan may fit your situation.

For most families, a 529 college savings plan is the best place to start. It was specifically designed for education savings, offers significant tax advantages, and has become more flexible in recent years. That said, the right choice depends on your financial priorities.

Here's how the main options compare:

Why a 529 is often the first choice

A 529 plan offers several advantages:

• Earnings grow tax-free.
• Withdrawals are tax-free when used for qualified education expenses.
• Many states provide a state income tax deduction or credit for contributions.
• Funds can generally be used for college, many graduate programs, apprenticeships, and certain other qualified education expenses.

One concern used to be, "What if my child doesn't go to college?" Recent rule changes have made 529s more flexible. Under certain conditions, unused funds can be rolled into the beneficiary's Roth IRA (subject to lifetime and annual limits), reducing the risk of over-saving for education.

When a Roth IRA may make more sense

A Roth IRA can be attractive if:

• You're behind on retirement savings.
• You're unsure whether your child will attend college.
• You want maximum flexibility.

However, financial planners generally recommend prioritizing retirement before college savings because there are loans for education, but not for retirement. If you're not yet on track for retirement, directing additional savings to retirement accounts may be the stronger financial move.

A balanced strategy

Many families use a combination:

1. Contribute enough to retirement accounts to stay on track.
2. Open a 529 and contribute monthly—even $25–$100 per month can compound meaningfully over 18 years.
3. Increase contributions as income grows or after major expenses (like daycare) end.

How much should you save?

A simple starting point:

• If your child is an infant: $100–300/month can grow substantially over 18 years, depending on investment returns.
• If your child is older, you may need higher monthly contributions to reach the same goal.

The exact amount depends on:

• Your child's current age
• Whether you're targeting an in-state public university, private college, or something in between
• How much of the cost you expect to cover versus scholarships, student work, or loans

If you tell me:

• your child's age,
• your state (state tax benefits vary), and
• roughly how much you'd like to cover (for example, 50%, 100%, or a specific dollar amount),

I can estimate a monthly savings target and suggest an investment approach within a 529 plan.

Starting to save for a child’s college education is most effective when done early to leverage compound growth, with experts suggesting an early start can mean up to one-third of the total savings comes from investment earnings.

How to Start Saving

1. Open a 529 Account: These can be set up online through a state's website or a financial institution. Anyone can open one, and you are not limited to your own state's plan.
2. Automate Contributions: "Set it and forget it" by setting up automatic monthly transfers from your bank or payroll, recommends Fidelity.
3. Use Age-Based Portfolios: These automatically shift from higher-risk (stocks) to lower-risk (bonds/cash) investments as your child approaches college age.
4. Prioritize Your Retirement: Ensure you are contributing to your own retirement savings before fully funding college accounts.

529 Plans vs. Other Options

• 529 Savings Plan (Recommended): These offer tax-deferred growth and tax-free withdrawals for qualified expenses (tuition, fees, room and board, computers). In 2026, up to $35,000 of unused funds can be rolled over to a Roth IRA for the beneficiary, and up to $10,000 can be used for student loan repayments.
• Coverdell ESA: Similar to a 529 but limited to $2,000 in contributions per year.
• UGMA/UTMA Custodial Accounts: Offer less control, as the child gains access to the funds at 18 or 21, and they are taxed at a higher rate.
• Roth IRA: While designed for retirement, contributions (not earnings) can be withdrawn tax-free, offering more flexibility if the child doesn't attend college.
• High-Yield Savings Accounts: Low risk, but limited growth potential compared to investment options.

Key 529 Plan Features in 2026

• Tax Advantages: Many states offer state income tax deductions or credits for contributions.
• Expanded Use: Funds can be used for K-12 tuition (up to $10,000/year), vocational training, and apprenticeships.
• Gift Tax: The 2026 gift tax exclusion allows up to $19,000 per donor, per beneficiary annually ($38,000 for couples).

To help you decide on the best plan, tell me:

• How many years until your child attends college?
• Are you more interested in tax benefits or maximum flexibility?
• Do you live in a state with a 529 tax deduction?