How Much Should You Save for Your Child’s College?

How Much Should You Save for Your Child's College?

There are two common ways to estimate the amount you should save for your child's college: Either aim to save a third of what it will cost in total to send your child to a four-year college, or aim to save half of that amount. You can decide which rule of thumb to use based on your income and other expenses and the amount you'd like your child to pay for college on their own.

To determine the amount you should save based on your family's circumstances, try using a college savings calculator or age-based benchmarks. For example, investment firm T. Rowe Price recommends planning to save multiples of the current cost of one year of tuition, fees, room and board at your target college type based on your child's age.

These costs can vary widely: Average published tuition, fees, room and board at four-year in-state public universities, for example, were $24,920 per year for the 2024-25 school year compared with $58,600 per year at private nonprofit colleges, according to The College Board.

Here's what using age-based milestones looks like, if your plan is to save 50% of total college costs:

Let's say you're planning for your child to go to an in-state public college that currently costs $24,920 per year. By the time your child turns five, you'll aim to have about $15,000 saved, or 24,920 multiplied by 0.60.

When Should You Start Saving for Your Child's College?

It's ideal to start saving for your child's college as early as possible. (There are even ways to set aside money for college before they're born.) That's because the sooner you save, the more time you have for compound interest to add to your balance. You'll also experience less financial strain as your child gets closer to college age, when you may feel pressure to turbocharge your savings if you suddenly realize you're behind on your goals.

Additionally, starting early means you can save less per month and have a substantial amount set aside when your child turns 18. That gives you breathing room to save for retirement, pay down your mortgage and address other financial goals during the years when you're diligently building up college savings.

Types of College Savings Accounts

The high cost of college means most families won't be able to simply save in a traditional savings account and hit their target. Instead, there are multiple types of college savings accounts tailored to families that allow you to earn higher returns by investing. They include:

• 529 college savings plan: Individual states offer 529 savings plans, which don't have annual contribution limits but allow you to save up to a lifetime maximum per child. You won't pay tax on withdrawals if you use the funds for eligible education expenses.
• Custodial accounts: UGMA and UTMA taxable brokerage accounts aren't specific to college savings, but are for adults to set aside money for minors to use once they reach a certain age. There is more flexibility in how the funds can be spent than with a 529 plan but not the same tax advantages.
• Coverdell Education Savings Account (ESA): Similar to a 529 plan, a Coverdell ESA is an investment account specifically for education-related expenses. But you can only contribute if you earn less than $110,000 per year in modified adjusted gross income (or $220,000 per year if you file taxes jointly with a spouse).
• High-yield savings account: This type of savings account may earn lower returns than an investment account, but the interest rates are higher than traditional savings accounts offer. A high-yield savings account is a good option if your child will head off to school in just a few years and you want to ensure your savings are safe from dips in the market before then.

How to Maximize Your Child's College Savings

Use these strategies to get the most from your college savings:

• Automate contributions. No matter the type of account you choose, set up automatic monthly contributions to it from your checking account so that college savings become part of your monthly budget. Other family members can do the same if they want to support your child, transferring money either as a one-time gift on birthdays or on a monthly basis.
• Consider financial aid calculations. The type of college savings account you choose can affect how much financial aid your child qualifies for. For example, since financial aid formulas view custodial accounts as a child's asset, that means the child is considered to have significant individual resources coming into school and may not get certain types of aid. However, 529 plans and Coverdell ESAs are considered the parent or other account owner's asset, and as a result do not have as large an impact on potential financial aid.
• Make use of tax benefits. Certain college savings accounts allow your funds to grow tax-deferred, meaning you won't pay federal or state income tax on investment earnings. If you choose your state's 529 plan, you may also qualify for state tax breaks such as an income tax deduction on contributions.

Know that most students don't pay the full "sticker price" as published on college websites. According to a 2024 Brookings Institution analysis, only a quarter of students at in-state public colleges and 16% of students at private nonprofit colleges paid full price during the 2019-20 school year.

That means that most students receive financial aid based either on their family's income or on their own achievements, such as their grades or their artistic or athletic abilities. Saving as much as you can manage is a laudable goal, but it's neither realistic nor necessary to fund your child's entire college experience if it feels out of reach.

The Bottom Line

For many families, the sheer size of college savings goals can be intimidating. But start by planning to hit certain age-based milestones and choosing the type of account that will help you get there. While your hard work is worthwhile, remember that financial aid—including grants, student loans and work-study funds—will be available to help make up a shortfall, and you can always make adjustments to your savings plan along the way.