How Much Should You Save
for College?
What college will actually cost when your child enrolls, how much to save each month by age, and why the 529 plan is the best tool by a wide margin.
College Will Actually Cost
College costs have increased at roughly 4–6% per year for decades — faster than general inflation. Projecting forward, a child born today who attends a 4-year public university in 18 years will face tuition, room, and board costs of $140,000–$200,000 in nominal dollars. Private university: $350,000–$500,000+.
| School Type | Current Annual Cost | In 10 Years (4% inflation) | In 18 Years (4% inflation) |
|---|---|---|---|
| Public in-state | $27,500/yr | $40,700/yr | $56,200/yr |
| Public out-of-state | $44,000/yr | $65,100/yr | $89,900/yr |
| Private university | $58,500/yr | $86,600/yr | $119,500/yr |
Total 4-year cost at a public in-state university for a child born today: approximately $225,000 by the time they enroll. The 529 plan is the primary tool designed for exactly this challenge.
Plans: The Most Powerful College Savings Tool
A 529 plan is a state-sponsored, tax-advantaged investment account where contributions grow tax-free and withdrawals for qualified education expenses are completely tax-free — at both federal and state levels. 'Qualified expenses' include tuition, room and board, books, fees, computers, and K-12 tuition up to $10,000/year.
Many states also provide a state income tax deduction for contributions. California doesn't, but New York ($5,000/single, $10,000/married), Illinois ($10,000/$20,000), and most other states do. This is essentially free money — a state tax deduction on top of tax-free growth.
Starting in 2024, unused 529 funds can be rolled into a Roth IRA for the beneficiary (up to $35,000 lifetime, subject to rules). This eliminates the biggest historical risk of overfunding a 529. You can now save aggressively without worrying about what happens if your child gets a scholarship.
Much to Save Each Month by Child's Age
| Child's Age Now | Goal: Fund 50% of Public In-State | Goal: Fund 100% Public | Goal: Fund 50% Private |
|---|---|---|---|
| Birth | $175/mo | $350/mo | $425/mo |
| 3 years old | $220/mo | $440/mo | $540/mo |
| 5 years old | $280/mo | $560/mo | $680/mo |
| 8 years old | $400/mo | $800/mo | $975/mo |
| 10 years old | $580/mo | $1,160/mo | $1,420/mo |
Assumptions: 7% average annual return (age-based investment glide path), 4% annual college cost inflation, 18 years for birth cohort. These are approximations — use a 529 calculator for your exact situation.
vs Other College Savings Vehicles
| Option | Tax Benefit | Flexibility | Verdict |
|---|---|---|---|
| 529 Plan | Tax-free growth + withdrawals | Education expenses only (mostly) | Best choice for college savings |
| Roth IRA | Tax-free growth + withdrawals | Full flexibility; can use for college | Good secondary option; prioritize retirement |
| UTMA/UGMA Account | No tax advantage | No restrictions on use | Counts heavily against financial aid; avoid |
| Regular taxable account | No tax advantage | Full flexibility | 529 is strictly better for college savings |
| Savings account | None | Full flexibility | Loses to inflation; only for near-term needs |
to Do If You Start Late
Starting at 10 or 12 instead of birth means you need to save significantly more each month — but it's still worth doing. A 529 even with 6 years of growth is still a tax-free vehicle. And partial funding is valuable: covering even 25–50% of college costs through savings reduces the loan burden dramatically.
If you're starting late, also consider: in-state public universities (dramatically lower cost than private), community college for the first two years, merit scholarships (which don't reduce for savings the way need-based aid does), and work-study programs that reduce net cost.
529s Interact With Financial Aid
Parent-owned 529 assets count at a maximum of 5.64% in the Expected Family Contribution (EFC) formula — meaning a $100,000 529 balance reduces need-based financial aid by a maximum of $5,640. Student-owned 529s count at 20%. This is relatively favorable compared to other assets. The bottom line: 529 savings modestly reduce need-based aid, but the tax-free growth benefit almost always outweighs this impact for most families.