With the cost of college tuition and educational expenses steadily rising, planning ahead has never been more important. While the idea of saving for college can feel overwhelming, starting early — even with small steps — can make a big difference over time. By building a thoughtful savings strategy now, you can ease future financial stress and give your child more freedom to focus on learning and growing. The sooner you start, the more opportunities you create for their future — and for your peace of mind.

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According to the College Board's Trends in College Pricing report for the 2024-2025 academic year, the national average costs for private and public higher education are as follows:

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‍Public Four-Year Colleges

In-state students: $11,610 per year for tuition and fees.

Out-of-state students: $30,780 per year for tuition and fees

‍Private Four-Year Colleges

$43,505 per year for tuition and fees.

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These figures show a slight increase from the previous year. For public four-year colleges, tuition and fees rose by about 2.2% for in-state students and 2.4% for out-of-state students. Private colleges saw a more significant increase of approximately 5.5% in tuition and fees.

It's important to note that these figures only cover tuition and fees. When considering the total cost of attendance, additional expenses such as room and board, books, supplies, and other personal expenses must be factored in. For instancehe average cost for room and board adds approximately $13,310 to the annual expenses.

However, remember that many students do not pay the full sticker price due to financial aid. CollegeBoard data suggests the average undergraduate student received $16,360 worth of student aid during the 2023-2024 school year.  These figures highlight the importance of considering financial aid options when evaluating the true cost of college education.

Starting early and staying disciplined is the key to saving for college. Below we discuss various vehicles families can utilize when saving for college education.

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529 Plans

A 529 plan is a tax-advantaged savings account designed to help families save for education expenses. These plans, named after Section 529 of the Internal Revenue Code, offer several benefits along with some limitations.

Advantages:

1. Tax advantages: Contributions grow tax-free, and withdrawals for qualified expenses are tax-free.
2. High contribution limits: There are no annual contribution limits set by the IRS for 529 plans, however there are important considerations regarding contributions:
   • Gift Tax Exclusion: In 2025, contributions up to $19,000 per donor per beneficiary qualify for the annual gift tax exclusion.
   • Superfunding: Individuals can contribute up to $95,000 (5 years’ worth of contributions) in a single year without triggering gift tax, provided no additional gifts are made to the same beneficiary over the next 5 years.
3. No income restrictions: Anyone can contribute regardless of income level.
4. Flexibility: Funds can be used for various education-related expenses, including tuition, room and board, books, and supplies.
5. Account control: The account owner retains control over the funds and can change beneficiaries if needed.

Considerations:

1. Potential overfunding: Unused funds may face penalties if withdrawn for non-qualified expenses.
2. Impact on financial aid: 529 plan assets can affect a student's eligibility for need-based financial aid.
3. State-specific restrictions: Some benefits, like state tax deductions, may only be available to residents of the sponsoring state.
4. Penalties for non-qualified withdrawals: Using funds for non-qualified expenses incurs taxes and a 10% penalty on earnings.

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Coverdell Education Savings Account (ESA)

Coverdell ESAs allow tax-free growth and tax-free withdrawals when used for qualified education expenses. These accounts can be used to pay for a wide range of educational costs, including K-12 expenses as well as college and university costs.

Advantages:

1. Tax advantages: Earnings grow tax-free, and withdrawals for qualified expenses are tax-free.
2. Flexibility: Funds can be used for various education-related expenses, including K-12 costs like tuition, books, supplies, and equipment.
3. Beneficiary changes: The beneficiary can be changed without penalty if certain conditions are met.
4. Financial aid treatment: ESAs are considered parental assets for federal financial aid purposes.

Considerations:

1. Low contribution limits: The maximum annual contribution is only $2,000 per beneficiary.
2. Income restrictions: Ability to contribute is limited by income. Full contributions are allowed for single filers with MAGI under $95,000 and joint filers under $190,000.
3. Age limitations: Contributions must stop when the beneficiary reaches 18, and the account must be used or closed by age 30.
4. Penalties for non-qualified withdrawals: The earnings portion of non-qualified withdrawals is subject to taxes and a 10% penalty.
5. Coordination with other savings plans: The total of all contributions to a beneficiary's Coverdell ESAs cannot exceed $2,000 annually.
6. Potential impact on financial aid: While treated favorably compared to some assets, ESAs can still affect financial aid eligibility.

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UGMA / UTMA

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts are custodial investment accounts that allow adults to invest on behalf of a minor family member.

Advantages:

1. Investment flexibility: Both accounts allow for a wide range of assets, with UTMA accounts permitting an even broader selection, including real estate and physical property.
2. No income or contribution limits: There are no restrictions on how much can be contributed annually, regardless of the contributor's income.
3. Tax benefits: The first $1,250 of unearned income is tax-free, and the next $1,250 is taxed at the child's rate, which is typically lower than the adult's rate.
4. Flexible spending: Unlike 529 plans, funds can be used for any purpose that benefits the child, not just education expenses.

Considerations:

1. Irrevocable transfers: Once assets are transferred to the account, they cannot be taken back by the contributor.
2. Loss of control: The child gains full control of the account upon reaching the age of majority, which varies by state (typically 18 or 21).
3. Impact on financial aid: UGMA/UTMA accounts are considered the child's asset, reducing financial aid eligibility by 20% of the asset value, compared to 5.64% for 529 plans.
4. Limited tax advantages: These accounts do not offer the same level of tax benefits as 529 plans, which provide tax-free growth and withdrawals for qualified education expenses.

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Ready to start your education savings plan or have questions about how to maximize your existing plan? Schedule a consultation with one of our financial advisors today!

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