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How Much to Save for College [Guide by Age]

In Money Management
Happy that she had been saving money for college for many years, a mother hugs her son on graduation day.

Planning and saving for college is no small feat. The rising cost of tuition, housing, and fees can make higher education feel like an impossible dream for many. However, starting to save early can make achieving that dream a reality.

With the right plan, your child can pursue their educational goals without being weighed down by debt. Read on to learn how to save money for college and put higher education within financial reach.

How Much Should You Aim to Save?

Most experts recommend saving at least one-third of the projected total cost of tuition and fees. This advice assumes the student plans to apply for scholarships and financial aid.

According to data published by the College Board, for a public 4-year in-state college, tuition and fees in the 2022-2023 academic year averaged almost $11,000 while private, nonprofit colleges averaged about $39,400. As a rough estimate, you’ll want to put away:

  • $3,300-10,000 per year for public college
  • $11,500-35,000 per year for private college

Of course, costs will likely continue rising in the years to come. Starting early allows your savings more time to grow through compounded interest and market returns. Therefore, determining how much to save for college by your child’s age is important for setting an attainable savings goal.

Birth to 5 Years Old

If starting at birth, aim to save anywhere from $50 – $100 monthly. Even small monetary contributions this early in life allow ample time for investment growth. Also, consider starting a 529 plan or UTMA/UGMA custodial account.

Ages 6 to 10

At this age, raise monthly contributions to $75 – $150. Kids are getting older and dreaming about college. Talk to them about the importance of doing well in elementary and high school so that they can possibly be awarded a scholarship or grant.

Ages 11 to 14

Ramp up savings to $150 – $300 monthly during middle school. Talk to your tween about their interests and future goals. Choose appropriate investments that will mature close to college years.

Ages 15 to 17

In high school years, increase contributions to $300 – $500 per month. Consider supplemental savings vehicles, such as Coverdells or Roth IRAs. Students should now start researching colleges and scholarship options.

College Savings Options

With so much riding on funding a college education, it’s essential to understand the various savings and investment vehicles available. Several commonly used options exist, each with its own benefits, nuances, and rules.

Let’s explore some of the most popular accounts families utilize to start stockpiling savings for future college costs:

529 Plans

College savings vehicles like 529 plans offer high contribution limits, often as much as $350,000 or more. This large amount allows families to invest sizable sums over the typical 18-year period until a child enters college.

529s are designed explicitly for qualified education expenses and offer benefits like tax-free growth and withdrawals. For those starting their savings journey early, a 529 can help maximize savings within the generous limits.

Coverdell ESAs

Coverdell ESAs are like 529 plans in that earnings grow tax-deferred and qualified withdrawals are not taxed.

However, Coverdells have much lower lifetime contribution limits of $2,000 annually. They also have income limits on who can contribute, phasing out for incomes over $95,000 (individual) or $190,000 (joint). Plus, the child must use Coverdell funds before their 30th birthday.

UGMA/UTMA Custodial Accounts

Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts allow parents to transfer assets like stocks or cash to a minor child in their name. While the parents are account custodians, the assets legally belong to the child.

As the funds accumulate over time, ownership remains with the child until they reach the age of maturity as defined by applicable state law, typically between 18-21 years old. At that point, control and ownership get transferred to the child. Earnings get taxed yearly based on the child’s tax rate, which is typically lower than the parents’ rate.

U.S. Savings Bonds

Series EE and I savings bonds allow families to purchase bonds in the child’s name with the parent’s Social Security number. Bonds earn a guaranteed return that is generally competitive with low-risk investments.

Savings bonds can provide tax benefits for college. Some bond interest may be tax-free if redeemed within five years of the planned enrollment year and used for qualified education expenses. You must hold bonds for at least one year from their issue date.

Roth IRA

Though meant for retirement, you can use a Roth IRA to pay for college before age 59 ½  without penalty. Earnings grow tax-free and qualified withdrawals don’t get taxed. Contribution limits are low at a $6,000 annual max as of 2023.

Supplemental Savings Strategies

Automating monthly transfers, selecting investments thoughtfully, and shopping tax advantages are all keys to building an effective college savings plan. Starting early gives families the best chance to achieve their kids’ educational dreams without debt.

In addition to the core accounts listed above, consider supplemental savings vehicles to maximize growth:

Applying for a credit union scholarship is another way to supplement your college savings. 1st Advantage Credit Union offers annual college scholarships to qualifying members. Doing well in high school and the community can open doors to thousands of dollars in free money for approved college costs.

Begin Saving Now for College Tomorrow!

The sooner you start saving for college, the more time your money has to grow through compound interest and market returns. 1st Advantage offers a variety of intelligent ways to save for college. Click below to explore our many savings account options.

See Our Saving Options & Benefits
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