Saving for college: When and how to start

At a glance

Here are 3 key ways to make the most of saving for college:

• Take advantage of tax benefits and flexibility. A 529 is a tax-advantaged plan designed for education savings. It offers tax-deferred growth and tax-free withdrawals for qualified expenses. Other options include UTMA/UGMA accounts and Coverdell ESAs.
• Make consistent contributions. Regular, small contributions can make a big difference. Consider setting up recurring transfers to stay on track. 
• Maximize compound growth. Starting early allows your investments more time to grow through compounding. Small, regular contributions can add up significantly over the years.

Saving for college is one of the most important financial goals for many parents and guardians, including those with young—or even future—children. No matter your financial situation or the type of education you envision for your child, one fact remains true: The earlier you can start saving, the better. But it's never too late.

More time gives your savings more potential to grow. This is the magic of compounding—when your returns earn more returns and so on. By harnessing the power of compound growth, even small, consistent contributions can add up to a significant sum over time.

If you're getting a later start with college savings, don't worry. One of the best tools at your disposal is an account designed for education savings, like a 529 plan, which you can open as soon as the beneficiary has a Social Security number. These plans offer tax advantages and the potential for substantial growth no matter how late in the game you're starting.

How much should I be saving for college?

When it comes to college costs, it's natural to feel overwhelmed. Tuition and other expenses can add up quickly. However, with a bit of planning and consistent saving, you can make it more manageable.

Estimate future college costs

To get a clear picture of how much to save for college, start by estimating future college costs. This includes tuition along with room and board, books, supplies, and additional expenses like transportation.

Use a college cost calculator

Vanguard's College Savings Planner takes into account inflation rates and the specific costs of different types of institutions. Start by entering your child's age and the current costs for the type of school you're considering. Our calculator can populate the average cost for a 2-year or 4-year public or private school—or for a specific college if you have one in mind. Then you can adjust for an estimated inflation rate (typically around 5% for tuition) and set a goal of how much you want to cover, whether it's the full cost or a portion. You'll get a calculation of the total amount needed.

Consider the factors that may affect your goals

The type of schools you're considering—public, private, in-state, or out-of-state colleges—will have different costs. Scholarships, grants, and other forms of financial aid can reduce the amount you need to save. And your financial situation, including income, assets, and other obligations, all play a role in how much you can realistically set aside.

Prioritize your financial goals

Most of us have goals when it comes to our money. Should you build up your savings first? Pay off debt? How can saving for education factor in? Check out our perspective on how to prioritize competing financial goals.

What is a college savings account?

A college—or education—savings account is a specialized financial tool designed to help you save for your child's higher education. These account types can offer several advantages, making them great options for many families:

• Tax benefits: Earnings in an education savings account, like a 529, aren't subject to federal tax, and withdrawals are also tax-free as long as they're used for qualified education expenses. Many states also offer tax deductions for contributions.
• Growth potential: Over time, the power of compounding can significantly increase the value of your savings.
• Flexibility: Funds can be used for a variety of educational expenses, including tuition, room and board, books, and sometimes even computers and software.

Custodial accounts like UGMAs and UTMAs, while not tax-advantaged, can be used for any purpose benefiting the minor (including education).

What are my college savings account options?

Saving for college doesn't have to be overwhelming—there are several smart options designed to help families plan ahead. Let's take a quick look at the most popular types of education savings accounts, from 529 plans to UGMAs, UTMAs, and Coverdell ESAs.

Understanding the 529 college savings plan

529 plans are a powerful tool for saving for higher education, offering two main types: savings plans and prepaid tuition plans. Each has its own unique features, eligibility requirements, and tax benefits.

A 529 savings plan offers a variety of investment options, similar to a 401(k) or IRA. Most states offer 529 plans, and you can save through any state's plan, no matter where you live. Almost anyone can open a 529 savings plan, including parents, grandparents, other relatives, or friends, with no income limits or age restrictions for the beneficiary. Contributions grow tax-deferred, and withdrawals are tax-free at the federal level,¹ and generally not taxed at the state-level,² as long as they're used for qualified education expenses. Also, many states offer tax deductions for contributions.

A 529 prepaid tuition plan is a state-sponsored program that allows you to lock in today's tuition rates at participating colleges and universities, protecting you from future increases. However, prepaid plans aren't available everywhere—in 2025, only 9 states offered them. Each plan has particular rules and features, and they typically limit you to in-state public colleges and universities, so it's important to do some research if you're considering this option.

UGMAs and UTMAs

UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act) accounts allow you to transfer assets to a minor.

These are taxable investment accounts that are straightforward to set up and manage. They have no contribution limits, and funds can be used for any purpose benefiting the child, including education. As of 2025, the first $1,350 of unearned income is tax-free, the next $1,350 is taxed at the minor's rate, and any amount over $2,700 is taxed at the parent's rate.

You can open an UGMA or UTMA account at a bank or brokerage firm.

Coverdell ESAs

Coverdell education savings accounts (ESAs) are another option, though they're less commonly used these days. Earnings in Coverdell ESAs grow tax-free, and withdrawals are tax-free for qualified expenses. The funds can be used for K–12 expenses as well as higher education. For 2025, the maximum annual contribution is $2,000 per beneficiary, which may be reduced if your modified adjusted gross income is between $95,000 and $110,000 for single tax filers or between $190,000 and $220,000 for joint filers. Single tax filers with incomes over $110,000 or joint filers with incomes over $220,000 are ineligible to contribute.

While fewer institutions offer Coverdell ESAs, you can still open one through a bank or brokerage firm. However, it's a good idea to check whether the institution will continue to support these accounts. It's also important to note that contributions aren’t allowed after the beneficiary reaches age 18, unless they qualify as a special needs beneficiary, and that the money in a Coverdell account must be used before they turn 30 years old.

With the range of savings and investment products available, it's important to consider which account is best for you. You should also be aware that there are some account types you may want to avoid when your goal is college savings.

It's never too late to start saving for college

Even though saving early gives your money time to grow, there's still value in starting now—even if your child is in high school. The dollars you save won't have as much time to grow, but they're still dollars you won't be borrowing.

If you choose an account that gives you tax benefits—whether it's immediate tax deductions or tax-free withdrawals—you'll be in an even better position.

And don't forget, your child will be in college for several years. So consider leaving your money in the account as long as possible to let it grow.

You can even save for yourself if you are considering advancing your own education.

How to open a 529 plan

Opening a 529 plan is a straightforward process you can tackle in just a few steps:

1.Select a state plan:

• Consider state tax benefits: Start by researching any tax breaks or benefits offered in your state and whether you need to use your state's plan to take advantage of them.
• Compare features: Explore the 529 plans offered by various states, considering factors such as investment options, performance history, management fees, and any additional benefits like matching contributions.
• Choose a plan: Select the plan that best meets your needs. You don't have to choose a plan from your home state; you can opt for any state's plan.

2.Choose investment options:

• Review portfolios: Most 529 plans offer a variety of investment portfolios, including age-based, static, and individual funds.
• Select a portfolio: Choose an investment portfolio that aligns with your risk tolerance and the time until your child will need the funds. Age-based portfolios automatically adjust to become more conservative as your child gets closer to college age.

3.Name a beneficiary:

• Identify the beneficiary: Decide who will be the beneficiary of the 529 plan. This is typically your child, but it can be anyone who's eligible—a family member, a friend, even yourself.
• Provide information: Fill out the necessary information for the beneficiary, including their name, date of birth, and Social Security number.

4.Set up contributions:

• Determine contribution amount: Decide how much you want to contribute regularly. Even small amounts can add up over time.
• Set up recurring transfers: Most 529 plans allow you to set up automatic contributions from your bank account. This ensures you stay consistent with your savings.
• Make lump-sum contributions: If you prefer, you can also make one-time contributions whenever you have extra money to invest.

5.Invite family to help

• Share a Ugift® code with family or friends: This convenient, free-to-use service makes it easy for anyone in your circle to contribute to your student's education savings fund, electronically or by mail.
• Celebrate milestones: College savings makes a great gifting option for birthdays and other occasions.

Ready to open a 529 account?

Vanguard is one of the largest 529 plan money managers in the industry, combining low-cost funds and expert portfolio management. We offer Target Enrollment Portfolios (TEPs) for those who prefer a "hands-off" approach—or you can design and manage your own investment strategy through individual portfolios.