Saving for your child’s future is no easy task, and with tuition rates rising, sending your kids to college can seem intimidating. Many parents will start saving early so that their children can have good earning potential,  career opportunities, and financial stability without sinking into student loan debt.

Before you start saving for your children’s college fund, it’s important you’ve already done the following:

  • Paid off any debt which includes your mortgage, your credit card debt, your student loan debt, etc.
  • Created an emergency fund of 3 to 6 months of expenses to cover any unexpected costs.
  • Have started retirement savings through your employer-sponsored retirement plan or other measures.

Now let’s discuss a few excellent financial tools available to save for your kid’s college education.

Coverdell Education Savings Account (ESA):

A Coverdell Education Savings Account is also known as an ESA, Coverdell account, or formerly known as education individual retirement account. It is an investment account intended for educational expenses, which can include expenses for college or kindergarten through 12th grade. It is a way to contribute up to $2,000 a year to a child’s account with a tax-advantage to boot. The rate of growth will vary based on the investments in the account. You’ll likely earn a much higher rate of return with an ESA than you would in a regular savings account, and you won’t have to pay taxes when you withdraw the money to pay for education expenses.

This account is not available to everyone. You must be within a certain income bracket in order to contribute. Since this type of plan is intended for education expenses, if you withdraw funds for any other reason, there is a 10% penalty and the beneficiary will pay income taxes on the plan’s earnings. The beneficiary must also use the funds by the time they turn 30. If they don’t, you have two options:

  • You may transfer the funds of the ESA to another family member who is under the age of 30.
  • The beneficiary can withdraw the funds within 30 days of turning 30, although they will need to pay the aforementioned penalty and income taxes.

529 plan

If you don’t meet the income limits for an ESA, then a 529 Plan could be a better option. It is a state-operated college saving plan; funds from this type of plan can also be used for any other school tuition fee, from kindergarten to a secondary education. You are eligible to open a 529 plan in any state and the funds you can be utilized for college in any other state, as well as for some international universities.

With 529s, you have to pay normal income tax on the money you put into your plan, but you don’t need to pay taxes on the investments’ earnings, or when you pull the earnings out to pay for college.

If your firstborn decides not to go the college route, the right 529 plan will give you an option to change the beneficiary to another family member. You can also use the funds you saved for the next kid in line.

Individual Retirement Account (IRA)

It is well known that an individual retirement account is a retirement savings. It can also work well for a college fund.

If you withdraw an IRA before the retirement age, you usually have to pay a 10% early withdrawal penalty. 

However, when you use the withdrawal amount to pay for tuition fees or other qualified expenses for your children, your spouse, or even your grandchildren, you don’t have to pay a penalty.

Advantages and disadvantages of choosing the IRA:

It cannot reduce the financial aid your child receives.On full withdrawal, you may have to pay taxes like federal and state income tax.
After the utilization of the college fund, if there are unused funds, you can use it for your retirement.You can’t use this fund for expenses from kindergarten to 12th grade.
—–You’ll end up with fewer funds at the time of retirement.

Save in Custodial Account

Custodial accounts such as UGMAs and UTMAs (Uniform Gift to Minors Act and Uniform Transfers to Minors Act) both are virtually the same thing. UTMAs can hold assets beyond cash, stocks, mutual funds and so on, like a UGMA – but also real estate.

UGMAs and UTMAs are best for more responsible children. Your child will legally be able to use the money in the account – for college or anything else – when they turn 18.

Take out a Home Equity Loan

Home equity is a common approach for families to cover college expenses. When financial aid and scholarships do not materialize, parents can tap into home equity by paying down their mortgage instead of opening a separate college savings account.

Home equity loans are not the best approach if you have the time to set aside money in a savings account over the years, but if you haven’t saved enough and are looking for a fix, this is a loan worth exploring.

Saving Tips For Students As Well

It’s not just your duty to save for your child’s higher education. Get your kids involved in the effort and teach them healthy financial habits for the future.

Some things your kids can do themselves:

  • Apply for a scholarship
  • Take advanced placement classes
  • Get a part-time job
  • Open a savings account
  • Save as much as they can


Whatever option you choose for kid’s college funds, make sure you do not hamper your own savings. The most appropriate savings method may be a 529 plan since it offers tax-related advantages and the ceiling for contributions is very high.

It’s never too early to start thinking about a college savings plan. Whether your child is a teenager or toddler, the best time to start a college fund is now.

Author Bio

Amy Nickson is a web enthusiast. She is associated with where she shares her expertise through her crisp and well-researched articles regularly.