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Personal finance

When should you start saving for college?

Childhood goes from crib to kindergarten in the blink of an eye. Before you know it, college will be next. But you'll be ready!
6 minute read

Short answer: The earlier, the better ...

The earlier you save, the more time your money has to grow. This is the magic of compounding—when your returns earn more returns and so on. You can open a 529 and make the most of the time you have as soon as the beneficiary has a Social Security number!

Learn more about your education savings options

 

Here's an example

Let's say you start saving for college when your child is born. You invest in an account and save $25 a week for the first 9 years of their life but then stop—for a total investment of $11,700. If your account earns 6% a year, you'll have about $26,750 at the end of 18 years.

Now let's say you wait 9 years before you start to save, and then save the same $25 per week until your child is 18. Factoring in the $11,700 investment and 6% return, you'll have accumulated about $15,800 by the time they go off to college.

As you can see, you'll earn almost $11,000 more for college in the first scenario, thanks to the power of compounding!
 

Saving earlier means you'll have more for college

Compounding

When earnings on invested money generate their own earnings. For example, if you invested $5,000 and earned 6% a year, in the first year you'd earn $300 ($5,000 x 0.06), in the second year you'd earn $318 ($5,300 x 0.06), in the third year you'd earn $337.08 ($5,618 x 0.06), and so on. Over longer periods of time, compounding becomes very powerful. In the example above, you'd earn over $800 in the 18th year.

This hypothetical illustration assumes an annual 6% return. This illustration does not represent any particular investment nor does it account for inflation or taxes.

Tax deductions

Contributions you can subtract from your income on your tax return, resulting in a lower tax bill.

Tax-free withdrawals

Money you can take out of your account without owing any federal income tax, even if some of it has never been taxed.
GOOD TO KNOW!
 
Only 529 plans offer both tax deductions (depending on your state) and tax-free withdrawals when used for college.*
 

… But it's never too late

Even though the benefits of saving early are dramatic, 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.

Learn about The Vanguard 529 Plan

The clock is ticking!

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Frequently asked questions

The earlier, the better! You can open a 529 plan as soon as the beneficiary has a Social Security number.

The amount you should save depends on which college your child attends. You can use our college savings planner to estimate college costs.

Take advantage of the power of compounding by starting as soon as you can! We've found that accounts opened before the beneficiary turns one have a median account value of almost $52,000, more than 2.5 times higher than accounts opened when the beneficiary is 10.**

There are no disadvantages to saving early. And if you're not certain the money will be used for education, that's okay. 529s offer flexibility—in addition to 4-year colleges and tuition, the money can be put toward trade school, K–12 expenses, and study abroad programs. And with SECURE 2.0, unused 529 funds can be converted to Roth IRA savings for the beneficiary.

*The availability of tax or other benefits may be contingent on meeting other requirements.

**Vanguard calculations, using data from Ascensus, as of December 31, 2022.

For more information about any 529 college savings plan, contact the plan provider to obtain a Program Description, which includes investment objectives, risks, charges, expenses, and other information; read and consider it carefully before investing. If you are not a taxpayer of the state offering the plan, consider before investing whether your or the designated beneficiary's home state offers any state tax or other benefits that are only available for investments in such state's qualified tuition program. Vanguard Marketing Corporation serves as distributor for some 529 plans.

All investing is subject to risk, including the possible loss of the money you invest.