The Best Way to Start Saving for College

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Take a guess at how much debt the average college student racks up by the time they cross the graduation stage . . . are you thinking $5,000–$10,000? Think again. Student Loan Hero says the average college graduate’s student loan debt is at $37,172.(1) And that's just the average!

The most recent data from the Federal Reserve Bank of New York shows the overall student loan debt in America is hovering right around $1.3 trillion.(2) Trillion!

With the way things are going, college graduates will be lucky to have their student loans paid off before their kids start college! As a parent, you're probably thinking there has to be another way. Well there is! It’s time to start that college fund. It's not easy, but with focused dedication, hard work, and careful budgeting, it's possible to save enough so your child can go through college debt-free!

The Best Ways to Save for a College Fund

Dave recommends saving for your children's college using the following three tax-favored plans:


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Education Savings Account (ESA) or Education IRA

This allows you to save $2,000 (after tax) per year, per child. Plus, it grows tax-free! If you start when your child is born and save $2,000 a year for 18 years, you would only invest $36,000. However, at an average return rate of 8%, your college nest egg will grow nicely!

  • Variety of investment options
  • Grows tax-free


  • You must be within the income limit to qualify
  • Contributions are limited to $2,000 per year
  • The amount must be used by the beneficiary by age 30

529 Plan

If you want to save more, or if you don't meet the income limits for an ESA, look for a 529 plan that allows you to control what funds are in the account. Dave doesn’t recommend 529 plans that freeze your options or automatically change your investments based on the age of your child.

  • Higher contribution rates (varies by state, but generally you can contribute up to $300,000)
  • Most of the time, there aren’t any income limits or restrictions based on age
  • Grows tax-free


  • Money might not be transferable if beneficiary chooses not to go to college or receives scholarships

You can also change the beneficiary to another family member. So if your firstborn decides not to go the academic route, you can still use the funds you saved for the next kid in line.

UTMA or UGMA Uniform Transfer/Gift to Minors Act)

These college funds are not as good as other available options. The account is in the child’s name but is controlled by a custodian (usually a parent or grandparent). This person is the manager until the child reaches age 21. At age 21 (age 18 for the UGMA), the control of the money goes to the child to use any way they choose.


  • Funds can be used for more than just college expenses
  • Tax advantages for the contributor 


  • Beneficiary can use money however they choose once of legal age (pay for college or a sports car)
  • Beneficiary can’t be changed after selected

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

Connect with a pro to learn which option works best for you and your family. Contact a SmartVestor Pro today who can help walk you through the entire process!

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