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When my wife and I had our first child, one of the first things we talked about—after the diapers and sleepless nights—was how we were going to pay for college. With education costs rising every year, it’s something you can’t afford to leave for later. Fortunately, there are several good options to start saving early and make the process less overwhelming.
One of the most popular tools is the 529 plan. It’s a tax-advantaged savings plan designed specifically for education expenses. You put money in, it grows tax-free, and you don’t pay taxes when you take it out—as long as it’s used for qualified education costs like tuition, books, or even housing. Some states even offer a tax deduction or credit when you contribute. For our daughter, we opened a 529 plan just a few months after she was born and started small—$50 a month. Over time, that adds up, especially with compound interest doing its magic.
Another route is a Coverdell Education Savings Account (ESA), which also offers tax-free growth and withdrawals for education expenses. The main difference is that Coverdells have lower contribution limits and income restrictions, but they offer more investment flexibility. You can also use the funds for K-12 expenses, which gives it an edge if you're planning for private schooling early on.
Some parents also consider opening a custodial account like a UGMA or UTMA. These aren’t education-specific, but they allow you to save and invest money in your child’s name. The downside is that once your child turns 18 or 21 (depending on the state), they control the money—so it might not go toward education unless they choose it.
The key is to start early, even if it’s just with a little. Every dollar saved now is a dollar less you or your child may need to borrow later. Trust me, when that college acceptance letter shows up one day, you’ll be glad you planned ahead.
One of the most popular tools is the 529 plan. It’s a tax-advantaged savings plan designed specifically for education expenses. You put money in, it grows tax-free, and you don’t pay taxes when you take it out—as long as it’s used for qualified education costs like tuition, books, or even housing. Some states even offer a tax deduction or credit when you contribute. For our daughter, we opened a 529 plan just a few months after she was born and started small—$50 a month. Over time, that adds up, especially with compound interest doing its magic.
Another route is a Coverdell Education Savings Account (ESA), which also offers tax-free growth and withdrawals for education expenses. The main difference is that Coverdells have lower contribution limits and income restrictions, but they offer more investment flexibility. You can also use the funds for K-12 expenses, which gives it an edge if you're planning for private schooling early on.
Some parents also consider opening a custodial account like a UGMA or UTMA. These aren’t education-specific, but they allow you to save and invest money in your child’s name. The downside is that once your child turns 18 or 21 (depending on the state), they control the money—so it might not go toward education unless they choose it.
The key is to start early, even if it’s just with a little. Every dollar saved now is a dollar less you or your child may need to borrow later. Trust me, when that college acceptance letter shows up one day, you’ll be glad you planned ahead.
