How to Start a College Fund for Your Kids

As a parent, you want what’s best for your children. At a minimum, you may be thinking about putting a roof over their heads, getting food in their bellies, and showering them with unconditional love. But once those basic needs are met, you may find yourself thinking about the other ways you can give your children an advantage in life. Many parents have a goal of paying for college.  

Starting a college fund to help pay for your children’s future educational costs can reduce their reliance on student loans and set them up for financial success post-graduation. It can also teach them valuable money habits that’ll serve them well regardless of where they go to school or what they end up majoring in. 

Want to start saving but don’t know where to start? We’ve got some ideas about how to save for college and how to start a college fund.  

How to start a college fund 

1. Assess your family situation. 

Before you start your child’s college savings fund, it’s important to first check in with your family’s financial situation. This will allow you to make more realistic decisions about how much money you can and should be contributing for your child’s future educational expenses.  

In assessing your situation, you should ask yourself questions like these: 

How many children will you be saving for? 

The answer to this question will affect many aspects of your plan—from the number of accounts you open to the size of your contributions. Even if you have only one child now, consider the plans you have down the road for the size of your family. 

How much time do you have to save? 

The longer you have to save before your child needs to access their college fund, the more it will be able to compound and grow—and the less you will need to contribute each month or year to reach your savings goal. Whether your family is complete, you’re expecting, or you’re still planning for a first child, knowing your timeline is an important part of creating a plan. 

How much should you save for college? 

College is expensive. The average college tuition, including fees, for the 2022-23 school year ranged from a low of $10,940 per year (for in-state students completing a four-year degree at a public college) to a high of $39,400 per year (for those completing a four-year degree at a private, nonprofit college). And that doesn’t even include room and board, which can easily add an additional $10,000 or more each year. What’s worse is these costs are only expected to continue rising each year.  

Estimating how much your child will need to pay for college will give you a better sense of how much you should be saving. 

How much room do you have in your budget? 

It’s one thing to know how much you should be saving. But how much you can actually afford to contribute to your child’s college fund will depend on your family’s budget. This budget shouldn’t just include your monthly living expenses; it should also include other important financial goals that you are working toward, such as paying down debt and saving for retirement. Though you may want to prioritize saving for college because it will happen sooner, you’ll want to make sure you’re on track to also meet your other future savings goals.  

2. Choose your account type and open the account. 

When it comes to saving for college, the 529 plan gets most of the attention because of its tax advantages when used for educational expenses. But it’s far from your only option. In fact, there are a number of different types of accounts you can use to save for your child’s education, each with its own pros and cons.  

These include accounts specifically designed to save for educational costs, such as a Coverdell Education Savings Account (ESA) and accounts that your child can use to pay for educational and noneducational expenses, such as UTMA and UGMA custodial accounts. It can also include account types that are not typically associated with college savings, such as a Roth IRA or the cash value that accumulates in a permanent life insurance policy.  

Which account type makes the most sense for you will depend on several factors, including how much you plan to contribute, how much flexibility you want or need, and what tax benefits you are hoping to realize. A financial advisor can help you weigh your options and guide you through opening the account to ensure you’re putting your money to work in the most efficient way possible. 

3. Contribute to the account regularly. 

The next step is to fund the account. While it may be possible to make a lump-sum contribution to the account once or twice a year, most financial advisors will likely recommend that you fund the account regularly and consistently over the long haul.  

Monthly contributions aren’t just easier to work into your budget; they also help you build healthy saving habits and provide you with an opportunity to teach your kids about the value of making small, steady progress toward a financial goal.  

4. Periodically adjust your plan as necessary. 

Got a promotion or a new job with a significant pay increase? Maybe you can afford to boost how much you’re saving. Added another child to the mix? Maybe you’ll need to take another look at the math to ensure that you’re saving the right amount for all of your children. Unexpected time off from work? Maybe you’ll need to hit the pause button on saving and take a break until you’re back into earning mode.  

As your financial situation changes, it’s important to regularly revisit your plan so that you can adjust it accordingly. 

Likewise, even if your financial situation hasn’t changed, it’s a good idea to regularly check on your progress. After all, there are no guarantees in investing; just because you might have expected or anticipated a certain return on your savings doesn’t mean that’s what you’ll get. If your investments haven’t kept up with your expectations, you may need to boost your contributions (if possible) to stay on track with your goals.

5. Involve your child. 

Have a discussion with your child about a college fund, including how much you believe you’ll be able to contribute to their expenses and how you’re saving. If you’re able to cover the whole bill—that's great! If not, talk with your child about other options for making up the gap. Help them understand options like scholarships, grants and student loans and the strings attached to those.  

Also discuss the differences in cost between public and private universities or going in state versus out of state and how that impacts what they’ll be able to afford. Having this information upfront, before they have their mind set on a specific program or school, gives them the opportunity to make a more informed decision about where they apply. 

A financial advisor can help  

As a parent, saving for your child’s future is one of the most powerful things you can do to give your child a head start in their adult life. But when looking at a large number you’ll need down the road, knowing where to start can be difficult.  

A financial advisor can help you discuss your options and develop a strategy. They’ll also help you think through other important considerations for your growing family—like protecting your income and making sure your family is covered in the event of an emergency. But the most important thing is getting started. The sooner you start saving, the more flexibility you’ll have down the road.  

All investments carry some level of risk, including loss of principal invested.