College costs continue to climb, leaving many families wondering how they’ll afford higher education for their children. With tuition, room, and board easily reaching six figures over four years, the prospect of funding college can be overwhelming.

With the right strategy and early planning, families can take control of this major expense. Here’s what every parent or guardian needs to know about saving for college — and how to balance this important goal with other financial priorities.

When to Start Saving for College

The answer is simple: as early as possible, ideally when your child is born. Think of college savings not as a future expense you’ll figure out later, but as prepaying for college over the course of 18 years.

When families start saving in their child’s first year of life, they give their money nearly two decades to grow tax-free in a 529 plan through compound interest. Those early contributions have the potential to multiply significantly over 15 to 18 years, turning modest monthly savings into substantial education funding.

Great Savings Vehicle: 529 Plans

A 529 plan is a tax-advantaged education savings account designed specifically to help families save for college and other qualified education expenses. When it comes to college savings, these plans stand out as a great option, offering a unique combination of tax benefits and flexibility that is hard to find in other savings vehicles..

Tax Advantages

The most compelling feature of 529 plans is their tax treatment. All growth within the account is completely tax-exempt when used for qualified higher education expenses. This is rare in the investment world; there aren’t many opportunities to invest money, watch it grow, and pay zero taxes when withdrawing it.

Most investments get hit with taxes that create drag on returns over time. With 529 plans, families keep every dollar of growth as long as the money goes toward education costs. This tax shelter applies to any type of higher education expenses, making these plans incredibly valuable for long-term college planning.

Flexibility

529 plans offer remarkable flexibility that many families don’t realize.

Beneficiary changes: Funds can be transferred between siblings, cousins, parents, or even grandchildren. If one child doesn’t use all their college money, it can easily move to another family member who needs it.

No expiration date: Unlike some savings accounts, 529 plans don’t force families to use the money by a certain deadline. The funds can remain invested indefinitely, potentially serving multiple generations.

Rollover to retirement: Here’s a relatively new feature that’s particularly exciting. After a 529 plan has been in place for 15 years, up to $35,000 can be rolled directly into a Roth IRA for the beneficiary. This rollover isn’t taxed and helps fund retirement savings, subject to annual contribution limits and earned income requirements. 

Why Other Options Fall Short

Custodial accounts like the Uniform Transfer to Minors Act (UTMA) and the Uniform Gift to Minors Act (UGMA) might seem like solid alternatives, but they have significant drawbacks. These accounts allow adults to save money for a minor with an adult serving as custodian. However, the funds become available to children at age 18 (or 21 in some states), meaning parents lose control over timing and usage. More importantly, all growth in custodial accounts is subject to taxes throughout the investment period — dividends, interest, and capital gains all get taxed whether the money is used for college or not.

Financial Priority Order

Not every family can afford to save for everything at once. When budgets are tight and financial goals compete for attention, it’s crucial to prioritize them in the right order. This hierarchy typically makes the most sense financially.

1. Emergency Fund and Debt Elimination

Before saving for college, families should establish an emergency fund and eliminate high-interest debt, especially credit cards. With interest rates often in double digits, carrying credit card balances while trying to save for other goals is counterproductive. 

2. Retirement Savings

Parents have much less time to save than their children do, which is why retirement savings should be prioritized over college savings. 

Parents also benefit from immediate tax advantages through 401(k) contributions and IRAs, which reduces their current tax burden while building future security. Additionally, young people have multiple options for funding college:

  • Scholarships
  • Grants
  • Work-study programs
  • Student loans

Parents don’t have these same alternatives for retirement.

3. College Savings

Once emergency funds are established, high-interest debt is eliminated, and retirement savings are on track, then college savings can become a priority. This doesn’t mean college isn’t important; it means families need to secure their own financial stability first.

Sometimes families face the difficult reality that their budget doesn’t allow for college savings. This is where honest family conversations are essential. If parents can’t save for college, then choices need to reflect that reality. It might mean starting at community college, choosing an in-state school, or looking for more affordable options. 

College as a Financial Investment

College is one of the biggest financial investments a family will make. Treating it like any other major purchase can help you make smarter decisions and avoid financial regret. Just as you wouldn’t buy a house or car beyond your means, you shouldn’t choose a college that will strain your budget. 

Start by evaluating the total investment. If your child is considering a school that costs $40,000 per year, you’re looking at a $160,000 investment over four years. Add in potential interest from loans, and the true cost can be even higher. It’s important to calculate the total cost yourself (including rent, food, and other essentials) and honestly assess whether you can afford it without compromising other financial goals. 

College shouldn’t be a unilateral decision where children choose any school they want without considering financial implications. If you plan to fund a significant portion of college costs, the decision should involve the entire family. 

This doesn’t mean you are crushing your child’s dreams, but it does mean you’re setting realistic expectations early and helping your child understand that educational choices have long-term financial consequences for everyone involved.

Smart College Savings Starts Here

College savings is an important goal, but it should never come at the expense of your family’s overall financial health. The key is starting early when possible and maintaining realistic expectations about what you can afford. The best decision is one that sets your child up for success without derailing long-term stability or peace of mind.

For personalized guidance on college saving strategies and comprehensive financial planning, contact Premier Financial Group. Our fiduciary+, experienced advisors take the time to understand your specific goals and circumstances so we can help you develop a plan that balances college funding with your other financial priorities.