Saving for Your Kid’s College Education? Here Are Options to Consider

May 27, 2025

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If you’re planning to send your kids to college, it’s never too early to start planning and saving.

College costs can vary widely depending on the state and the particular school you’re looking at. To help give you an idea, here are some figures from the College Board’s 2024 Trends in College Pricing report.

The average published tuition and fees for full-time undergraduate students in 2024-2025:

4-year public in-state: $11,610

4-year public out-of-state: $30,780

4-year private (nonprofit): $43,350

With these sticker prices, saving for college can be a challenge for many, especially if you have competing financial priorities. Ahead, we’ll share a few tips to help you start planning for your child’s future.

Make a savings plan and commit to it

A key to successfully putting together a college savings plan is setting a realistic goal and committing to it.

As a first step, decide how much you want to pitch in to help your child. Having a specific number in mind can make saving less daunting and help you figure out how much to set aside each month. (The average costs we provided above can give you a ballpark to aim for.)

Crunching numbers to figure out how much you need to save can be tough to do on your own. There are various factors you may need to take into consideration, like inflation. So you may want to consult a financial advisor for help, as everyone's financial situation is different.

If you have specific schools in mind, do some research to see how much you’ll generally need. To help you set a savings target, ask yourself whether you’re planning to cover most of the costs or will you go in half and half with your child?

Keep in mind that with the help of scholarships and grants, you may not need to cover all of the costs on your own.

Once you have a good estimate, consider automating your monthly college savings to help you save consistently over time.

Decide which college savings vehicle makes the most sense for you

High-yield savings accounts and certificates of deposit are great savings tools, and they can be a good starting point for those looking to put money away for school. But there are additional options when it comes to saving for your child’s education. You may find that you want to use a combination of different vehicles to help you reach your goal.

1. 529 Plans

You might already be familiar with 529 accounts, but here’s a quick refresher.

These plans, sometimes referred to as “qualified tuition programs,” are typically administered by states. There are two types of 529 plans:

Education Savings Plans: This is a type of account with special tax advantages to help people invest for certain education expenses. The beneficiary of the account can be your kids, yourself, or anyone else you’d like to help out. These 529 plans offer a variety of investment options; the details of which will vary state by state.
Prepaid Tuition Plans: These plans are less common. As the name implies, they allow you to pay the tuition for certain colleges or universities in advance. This essentially allows you to lock in current tuition rates even though the beneficiary (i.e., the student) may not actually start college for several years. Unlike education savings plans, prepaid tuition plans cannot be used to cover the costs of room and board. They can be sponsored by states or by participating higher education institutions.

Good to know: States, as well as the District of Columbia, administer their own 529 plans, so plan rules, features, and contribution limits will vary state to state. When you’re ready to open an account, you can contact the specific state agency that’s in charge of the 529 plan you’re interested in. (And yes, generally, you can sign up for a 529 plan outside of the state you live in.)

You can also check out the College Savings Plans Network (CSPN), a resource center that provides more specifics about each state’s 529 plan(s).

Read more: What Is a 529 Plan?

2. Coverdell Education Savings Account

You can open a Coverdell ESA at a brokerage firm or other financial institutions.

This is a tax-deferred trust or custodial account that you can set up and manage on behalf of your child (or another designated beneficiary) to help them save for college.

A Coverdell ESA is similar to a 529 plan, given that withdrawals from the account are tax-free if the money is used to pay for qualified education expenses, like tuition and fees. However, unlike a 529 plan, you can only set up and contribute to a Coverdell ESA if you meet certain income and eligibility rules (see IRS Topic #310).

Generally, if you’re eligible, you can contribute up to $2,000 annually (must be made in cash) to a Coverdell ESA per designated beneficiary. Contributions are not tax deductible.

Per IRS rules, there’s no limit to the number of accounts that can be established for a particular beneficiary. However, the total contribution to all accounts on behalf of a beneficiary in any year can’t exceed $2,000. See IRS Publication 970 for more details and examples.

In addition, contributions can only be made to their ESA up until they reach the age of 18, unless the beneficiary has special needs.

Be aware that not everyone can contribute to a Coverdell ESA. Under IRS rules, you can only contribute if your modified adjusted gross income (MAGI) is less than $110,000 (or $220,000 for joint filers). In other words, if your MAGI is $110,000 or more ($220,000 or more for joint filers), you can’t contribute at all.

If your MAGI falls between $95,000 and $110,000 (between $190,000 and $220,000 for joint filers), the $2,000 contribution limit is gradually reduced.

See IRS Publication 970 for more information on the eligibility rules.

Reaching your goal starts with saving for it

See your saving options

Generally speaking, any money left in the Coverdell account when the beneficiary reaches the age of 30 must be distributed within 30 days. (This rule does not apply to a beneficiary with special needs.)

The earnings you take out will generally be subject to income tax and 10% additional tax at that time – unless you use the distribution to pay for qualified educational expenses for the beneficiary.

Good to know: Before the beneficiary reaches age 30, you may be able to change the account beneficiary to another member of the beneficiary’s family who is younger than age 30. You may even be able to roll over the account balance tax-free to another ESA for the benefit of a younger member of the beneficiary’s family. Again, the age limit doesn’t apply if the new member is a special needs beneficiary.

3. Custodial Accounts

You can use a custodial account to set aside money (or other gifts) for your kids. The money could be used for any purpose that benefits your child, like paying for college expenses.

Uniform Gift to Minor Accounts (UGMA) or Uniform Transfer to Minor Accounts (UTMA) are two common types of custodial accounts. And as a custodian, you’re in charge of managing the funds in the account until your child reaches the age of majority (usually 18 or 21 depending on the state you live in).

Keep in mind that custodial accounts come with certain rules. It’s important to understand how they work before opening an account, so that you can decide if it’s right for you. Always consult a financial advisor or your account provider if you have any specific questions.

Some key rules to note:

Contributions to a custodial account are considered an irrevocable gift to the child.
You, as the custodian, can only use the money in the account for the benefit of the child. (Basic parental support such as food, clothing, and shelter doesn’t count).
Depending on the state you live in and how you set up the account, the account legally becomes your child’s property once they reach the age of majority. So it’s possible that while you may have set it up for college, they may have other plans on how to use the money when they take control of the account.

Good to know: While you’re the custodian, the money in the account actually belongs to your child. Why does this matter? The funds in the custodial account could lead to a reduction in financial aid if your child applies for assistance.

Pay attention to your time horizon and risk tolerance when investing for college

529 plans, Coverdell ESAs, and UGMA/UTMAs come with their own menu of investment options. Depending on the type of account(s) you use, you may have a number of investment choices.

As with investing for any other goal (e.g., retirement), pay attention to your time horizon and risk tolerance.

See how much interest you could earn with a Marcus high-yield CD

Grow your savings

Many college savings plans offer age-based fund options that can adjust the portfolio over time as your child gets older. Still, it's important to review your investments regularly to make sure you’re comfortable with the amount of risk you’re taking on. If you need help understanding or choosing your investment plan, consult a financial advisor.

Consider other ways to pay for education expenses

If you’re not able to save as much as you’d like to for your kid’s college education, consider these additional options.

Grants and scholarships

These are the types of financial aid you don’t have to pay back. You can typically apply for federal financial aid by submitting the Free Application for Federal Student Aid or FAFSA. Don’t forget to explore other sources of aid as well. There are various grants and scholarships out there from individual colleges, states, and private groups.

Education tax credits

The American Opportunity Tax Credit and Lifetime Learning Credit are two examples. If you’re eligible to claim these credits, they could help with your qualified education expenses. The IRS has an interactive tool to help you determine your eligibility.

Be aware that you cannot claim both credits for the same student or same expenses in the same year. The credits are also subject to income qualification rules (see the AOTC and LLC webpage from the IRS for more details).

Education loans

You have plenty of options when it comes to education loans, including ones from private lenders or the federal government (visit studentaid.gov).

A word of caution: Loans may take years to pay back and can affect a student’s lifestyle and goals once they graduate. And some students may find it challenging to repay them. So if you’re considering taking out a loan, review your options carefully and do your research to help make sure you’re getting the best rate possible.

This article is for informational purposes only and is not a substitute for individualized professional tax advice. Individuals should consult their own tax advisor for matters specific to their own taxes. This article was prepared by and approved by Marcus by Goldman Sachs, but does not reflect the institutional opinions of The Goldman Sachs Group, Inc., Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates, subsidiaries or divisions. Goldman Sachs Bank USA and Goldman Sachs & Co. LLC are not providing any financial, economic, legal, accounting, tax or other recommendations in this article. Information and opinions expressed in this article are as of the date of this material only and subject to change without notice. Information contained in this article does not constitute the provision of investment advice by Goldman Sachs Bank USA, Goldman Sachs & Co. LLC or any of their affiliates. Neither Goldman Sachs Bank USA, Goldman Sachs & Co. LLC nor any of their affiliates makes any representations or warranties, express or implied, as to the accuracy or completeness of the statements of any information contained in this document and any liability therefore is expressly disclaimed.