Every parent wants to give their child the best possible future, and for many families, that includes higher education. But with tuition costs continuing to rise, figuring out how to pay for college can feel overwhelming. The good news? Starting a college fund early gives your savings more time to grow, making it easier to manage those future expenses.
When it comes to saving for a child’s education, 529 college savings plans are one of the most widely used and versatile options. These state-sponsored accounts are specifically designed to help families save for qualified education expenses, and contributions grow tax-free as long as they’re used for qualified expenses. Because of their flexibility and tax advantages, they’re one of the most popular ways to save for college. Begin by evaluating your state’s 529 plan, as that’s often the best place to start for state tax benefits. However, you’re not limited to your own state’s plan—you can choose almost any state’s 529 program that fits your needs.
Here’s how they work:
Let’s say you start contributing $200 monthly when your child is born. By the time they’re 18, assuming a 6 percent annual return, you could have about $75,000 saved—and all the earnings would be tax-free when used for education.
One of the biggest advantages of a 529 plan is its tax efficiency. Contributions are made with after-tax dollars, but the account’s growth and qualified withdrawals are tax-free. Some states even offer tax deductions or credits for contributions, adding another layer of savings.
For example:
While $250 may not seem like much, over time, these tax savings can make a meaningful difference—reducing your overall education costs just by choosing the right savings plan.
529 plans typically offer a range of investment portfolios, from aggressive growth funds to conservative options. Your child’s age and your comfort with risk will help guide your investment choices.
In the early years (ages 0–10), it often makes sense to invest more aggressively, with a higher allocation to stocks that have the potential for long-term growth. By the time your child reaches middle school (ages 11–15), gradually shifting to a more balanced approach can help manage risk. As college approaches (ages 16+), many families move to more conservative investments, such as bonds or money market funds, to help protect savings from market downturns.
Keep in mind, many plans also offer “age-based” portfolios that automatically adjust the investment mix as your child gets closer to college age.
Time is your greatest ally when it comes to compounding growth, so it’s ideal to start as soon as possible. Setting up automatic monthly transfers often works better than trying to make larger annual contributions. For example, contributing $100 monthly feels more manageable than coming up with $1,200 at year-end. If you start contributing that $100 monthly at your child’s birth, earning an average annual return of 6 percent, you could have nearly $40,000 saved by the time they turn 18. Plus, regular contributions help you take advantage of market ups and downs through dollar-cost averaging.
Here are a few tips to get started:
Worried about what happens if your child doesn’t go to college? 529 plans offer plenty of flexibility:
This flexibility ensures that your savings don’t go to waste, even if plans change.
While 529 plans are a popular choice, they’re not the only option. Depending on your family’s circumstances, other accounts might be worth exploring:
Each option has unique benefits and trade-offs, so it’s helpful to compare them carefully before making a decision.
Starting a college fund early may seem like a daunting task, but breaking it into manageable steps can help you stay on track. Whether you choose a 529 plan, a Coverdell ESA, or another option, the key is to begin as soon as you can and contribute consistently.
Saving for college doesn’t have to be overwhelming. By starting early, taking advantage of tax-advantaged accounts, and making saving a family effort, you can turn today’s small contributions into tomorrow’s opportunities—helping your child chase their dreams with confidence.
Contact us today to get started.
Michael Embrescia is a financial advisor located at EmVision Capital Advisors, 251 W. Garfield Rd. Suite 155 Aurora, OH 44202. He offers securities and advisory services as an Investment Adviser Representative of Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Adviser. He can be reached at (330) 954-3770 or at info@emvisioncapital.com.
Securities and advisory services offered through Commonwealth Financial Network®, Member FINRA/SIPC, a Registered Investment Advisor. Fixed insurance products and services are separate from and not offered through Commonwealth Financial Network®.
The fees, expenses, and features of 529 plans can vary from state to state. 529 plans involve investment risk, including the possible loss of funds. There is no guarantee that an education-funding goal will be met. In order to be federally tax free, earnings must be used to pay for qualified education expenses. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate and subject to a 10 percent penalty. By investing in a plan outside your state of residence, you may lose any state tax benefits. 529 plans are subject to enrollment, maintenance, and administration/management fees and expenses.
This material is intended for informational/educational purposes only and should not be construed as investment advice, a solicitation, or a recommendation to buy or sell any security or investment product. Please contact your financial professional for more information specific to your situation.
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