How To Save for College

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Key Takeaways

  • Saving for college early gives you the opportunity to earn more interest.
  • Many families pay for college with a combination of savings, investments, and loans.
  • Some options offer tax advantages.
  • Teens can contribute to their college savings by working, earning college credit, or getting scholarships.

Whether you plan to fully cover college expenses or pitch in a percentage, saving over time reduces stress—and student debt. Popular ways to save for college include 529 plans, Roth IRAs, and savings bonds Exploring your savings options will help you create a solid plan for getting your child off to a great start.

Ways To Save for College

Options for college savings offer flexibility to contribute individually or as a family. Explore your options to decide the best way to save based on your finances and time horizon.


It can be hard to nail down exactly how much you should save for college, especially if your child is years away from their first semester on campus. Considering the average cost of college is a good place to start. In the 2021-2022 academic year, families paid an average of $25,313 to cover college education expenses, which includes tuition, room and board, books, supplies, and fees.

529 Plan

A 529 plan, also known as a qualified tuition plan, is the most common method of saving for college. A 529 plan allows your savings to earn interest, which are tax-free provided the money is used for qualified education expenses. Other family members—even the beneficiary—can contribute to the state-sponsored plan that you start, or create their own. If you're the account owner, you'll control the funds, even when your teen turns 18 and starts college.

There are no maximum contribution limits for the plans, but contributions are subject to annual lifetime gift tax limits. Plans may have fees and expenses that eat into your returns, so understanding the costs is key.

Depending on the investment options you choose, your balance may fluctuate based on the market. You can adjust your investment options—but only twice a year or when you need to change the beneficiary.


If your child earns a full scholarship or opts not to attend college—and you don't have another relative you can designate as the beneficiary—you may have to pay taxes and penalties on withdrawals that aren't related to education expenses.

Roth IRA

A Roth IRA is a type of tax-advantaged retirement savings account that allows tax-free withdrawals after retirement age or when the funds are used for qualified education expenses. For college savings, a Roth IRA is a better option compared to the traditional IRA, which taxes withdrawals.

Roth IRA contributions are capped each year. For tax year 2022, you can contribute up to $6,000 if you're younger than age 50 and up to $7,000 per year if you're age 50 or older. In tax year 2023, those numbers are $6,500 and $7,500, respectively. Contribution limits phase out for high-income households, so it won't be an option for everyone.

Students aren't required to report the IRA balance on their FAFSA—the Free Application for Federal Student Aid—but any untaxed withdrawals will be reported.


The FAFSA is completed each year of college and is used to determine how much federal aid your student is eligible for.

Unlike a 529 plan, only the IRA owners can make contributions, which limits the opportunity for other family members to add funds. Unless you have retirement savings elsewhere, dipping into your IRA can affect your own retirement timing.

Savings Bonds

Savings bonds generally have low interest rates compared to other types of investments, but may be viable options if you can hold on to them for several years. Because the government backs them, savings bonds are considered safe investments, but have to be held for at least one year. They are better options if you have several years before your teen goes to college—you'll pay a penalty fee if you redeem before five years.

You can purchase up to $10,000 electronic and paper Series I savings bonds and an additional $5,000 in paper Series I bonds through your federal tax refund.


If you max out your bond purchase for the year, you can gift your child up to $10,000 in savings bonds, since gift purchases count toward the recipient's limit.

You can exclude interest received from your tax return when you use the funds for qualified education expenses at an eligible school, as long as the bonds were issued after 1989.

Traditional Savings Account

A traditional savings account is also an option for college savings, but it doesn't provide much advantage over other options other than easy access to the funds. Interest rates on savings accounts are generally lower than normal inflation, so your money actually loses value and the opportunity to earn more interest elsewhere.

Savings accounts may be good options for teens to contribute their own funds, but keep in mind that student savings account balances can affect financial aid eligibility.

Ways Teenagers Can Help Save for College

Discussing money early and often with your child can help teens become more comfortable learning about money and feel confident in their own financial decisions. Aim to provide balanced, accurate information, even when you're stressed about your own finances.

Involving your child in saving for their college expenses will not only reduce debt, it can empower students financially, teach them valuable lessons about budgeting, and give them a richer perspective of their college experience. While saving up a full year's worth of tuition may be more than teens can handle, stashing away enough money for a few books or decor for their dorm or apartment is reasonable. There are a few ways teens can help with their college costs, including some that don't require earning or saving extra cash.

Earn Income from a Job

Earning money from a job is a reliable way for your teen to have some spending money and set aside money for college. Teens can seek employment between ages 12 and 14 in many states, but can do casual work like babysitting or housework at any age.

Once your teen has a regular income, they're ready to open a bank account for deposits and spending. As they learn to manage money, they may need guidance in controlling their spending and prioritizing needs over wants.

Apply for Scholarships

Scholarships are great ways to reduce the amount of out-of-pocket expenses for families to cover. It's never too early to start considering various scholarships and how to qualify for them. This information can guide your child's high-school courses and extracurricular activities. For instance, some scholarships are based on academic achievement, while others focus on community service or talent.


Encourage your teen to talk to their school counselor about scholarships and grants they can apply for. Some have early deadlines, so it’s best to begin this discussion at the start of your child’s junior year.

Take Advanced Placement Courses

Advanced Placement (AP) courses, which are taken during high school, allow students to prepare for college work and earn college credits based on their AP exam score. The amount of credits offered for AP exam scores varies by school and by exam. For instance, a 3 on the AP chemistry exam may offer 4 credits at one school and 8 at another. Earning college credits means teens can take fewer courses, potentially graduate earlier, and save on overall tuition costs.

Dual Enrollment

Dual enrollment may be an option for students who want to get an early start earning college credits, but aren't ready for the rigor of an AP course. Many colleges have a partnership with local high schools and allow students to earn high-school and college credit for each course. Courses may be less expensive, and some colleges offer grants or scholarships to dually-enrolled students.

Students don't have to attend undergraduate school at the college they were dual enrolled in. Credits from two- and four-year colleges or universities are often transferable to other major colleges with similar accreditations.


Students can contact the registrar at their anticipated college to confirm whether credits from other colleges will transfer before enrolling.

When To Start Saving

Starting your child's college savings early gives you the best advantage. You'll have more time to save and benefit from potential compound interest. For example, if you begin contributing $250 per month to a college fund when your child is 1 year old, and assume a 7% return, the account’s balance would be around $98,000 by the time your child finishes high school. But if you start just four years later, the balance drops to $63,000.

Starting early also gives you more flexibility—you can adjust your contributions up or down as your financial situation or child’s needs change.

If you haven't started saving already, don't panic. You can start now, even if your child is in middle or high school. Remember: Any amount you can save will reduce the amount you or your child have to borrow.

Frequently Asked Questions (FAQs)

How can a teen start saving for college?

Teens can start saving for college by earning money through employment or by creating a job through babysitting, lawn care, or other service tasks. As teens earn money, they can contribute part of their income to their 529 savings plan or deposit money in a separate savings account. Setting up an automated transfer is an easy way to save consistently.

How much does the average family save for college?

The average family uses $10,932 in income and savings to pay for college—nearly half of all college costs. Family contributions vary by income level, racial background, school type, and financial aid. In addition to parent savings and investments, contributions from relatives and even the student help fill the gap.

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The Balance uses only high-quality sources, including peer-reviewed studies, to support the facts within our articles. Read our editorial process to learn more about how we fact-check and keep our content accurate, reliable, and trustworthy.
  1. Sallie Mae. “How America Saves for College: Sallie Mae's National Study of College Students and Parents.” Page 1.

  2. Security and Exchange Commission. “An Introduction to 529 Plans.”

  3. “Learn the ABCs of 529 Education Savings Plans.”

  4. IRS. “Traditional IRAs.”

  5. Charles Schwab. "2022-2023 Roth IRA Contribution Limits."

  6. Federal Student Aid. “What Is the Net Worth of Your Parents’ Investments?

  7.  Federal Student Aid. “How Do I Answer the ‘What Were Your Total Untaxed Portions of IRA Distributions and Pensions?’ Question on the FAFSA Form?

  8. TreasuryDirect. “Series I Savings Bonds.”

  9. TreasuryDirect. “Buying Series I Savings Bonds.”

  10. TreasuryDirect. “Education Planning.”

  11. Federal Student Aid. “Filling Out the FAFSA.”

  12. University of Alabama. “Credit by Examination.”

  13. UCLA. “Advanced Placement Credit - The College.”

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