Saving for College: Why It’s Never Too Early

Are you juggling diaper changes or carpools and wondering if you really need to worry about college now?

It might feel like college is a lifetime away, but the truth is that 18 years can fly by when it comes to saving money. From brand-new parents to those who have a teenager prepping for college, starting a college fund as early as possible can make a world of difference.

It’s never too early (or too late) to begin. We’ll chat about why getting a head start on college savings is so important, how tools like 529 plans can help, and practical tips to kickstart your savings journey.

Let’s dive in!

Time Flies: Why Start Saving Early?

Think about how we save for retirement: many of us invest over decades. Yet for college, we often have a much shorter runway – roughly 18 years from birth until freshman move-in day. That may sound like plenty of time, but every year you wait is a year of lost growth potential on your savings. Starting early gives your money more time to work for you through the magic of compound interest.

Compound interest is essentially earning interest on top of interest, and it’s your best friend when saving for college. The longer your money is invested, the more compounding can accelerate your balance. For example, saving for college early (even with small, manageable regular contributions) allows small contributions to grow into a more substantial sum by the time your child is college-bound, versus just putting a lot of cash away later in life.

Why? Because each year, your contributions and past earnings can generate more earnings cumulatively – a snowball effect. Experiment with the SEC’s (Securities and Exchange Commission) Compound Calculator to see what we mean.

Another reason to start sooner than later: life happens. As kids grow, so do expenses – from sports gear to groceries to school activities. It might be hard to imagine now, but an adorable toddler will one day be an extra-hungry teenager (cue the endless grocery bill!). And before you know it, the hefty cost of college tuition will be looming. Starting a savings habit early can help you prepare for those big bills down the road, even as day-to-day family costs increase.

The High Cost of Waiting (College Costs Keep Rising)

College isn’t cheap, and it’s getting more expensive every year. Tuition and fees tend to increase faster than regular inflation (often around 4% or more annually), which means the longer you wait, the more you may need to save to cover the same education. In fact, one estimate projected that a four-year public university could cost around $215,000 in 18 years for a baby born today (assuming about 4% annual college cost inflation). It’s a staggering number, but starting early can help make it manageable.

Consider these points about delaying versus starting now:

Smaller contributions vs. larger catch-up payments: If you begin saving when your child is a newborn, you can contribute a smaller amount each month to reach your goal. Wait a few years, and you’ll need to contribute significantly more each month to catch up. For example, waiting just four years to start saving for college might require nearly $100 extra per month to hit the same target. Early birds can save at a more comfortable pace.
Rising costs = more debt if you don’t save: Every dollar you fail to save now is potentially a dollar you or your child might need to borrow later (plus interest). By saving money now, you’re effectively reducing the amount your child may need in student loans down the road. For instance, borrowing just $20,000 for college means paying back a little over $26,500 over 10 years at a 6% interest rate – that’s $6k+ in interest payments that could be avoided if you had that money saved. In short, save now and you (or your kid) borrow less later.
Peace of mind and flexibility: Starting early and building a college fund over time can give your family more flexibility. If unexpected financial hurdles come up (job loss, new baby, etc.), having some college savings banked means you’re still ahead. Money already in a 529 plan will keep growing tax-free even if you need to pause contributions during tough times. If you haven’t saved anything and a crisis hits, catching up will be extremely difficult – another reason to get going as soon as you can.

The 529 College Savings Plan Advantage

You might be thinking, “Okay, I’m convinced to start early – but how should I save?” One of the most popular and parent-friendly ways to save for college is through a 529 college savings plan. Think of a 529 plan as a special savings account for education that comes with some awesome perks:

Tax benefits: A 529 plan is a tax-advantaged investment account designed to help families save for education. Your contributions are invested, and the earnings grow tax-free over the years. Even better, withdrawals are tax-free as long as you spend the money on qualified education expenses (like college tuition, fees, books, and even certain apprenticeship costs). This tax-free growth can make a big difference – you’re not losing a chunk of your kid’s college fund, so more of your money goes toward college bills. (Contributions themselves aren’t deductible on your federal return, but the earnings and withdrawals are where the big tax savings kick in.)
State tax perks: Many states sweeten the deal further by offering state income tax deductions or credits for contributions to a 529 plan. Over 30 states (plus D.C.) will give you a tax break for putting money into a college savings plan for your child. The caveat: usually, these benefits apply if you invest in your own state’s 529 plan. These state tax benefits can effectively give you an immediate return on part of your contributions. Because each state’s plan is a little different – in fees, investment options, and tax benefits – be sure to check what your state offers. It’s worth comparing plans to find one that fits your needs; remember, you’re not strictly limited to your home state’s plan if another plan offers better benefits or lower fees for you.
Flexibility and control: 529 plans also offer a lot of flexibility and control for parents. You remain in charge of the account, and you can typically use the funds at any eligible college nationwide (and even many abroad) – not just in your state. If your little one ends up deciding not to go to college, you won’t lose your savings. You can change the beneficiary to another qualifying family member (say, a younger sibling or even yourself if you plan to go back to school), so the money can still be used for education. Recent rule changes even allow unused 529 funds to be rolled over into a Roth IRA for the beneficiary under certain conditions, or used to pay student loans up to certain limits. In short, your money isn’t “locked up” if plans change – there are options to adjust how you use it.
High contribution limits: The contribution limits for a 529 plan are more flexible than other accounts, like IRAs. Per the IRS, “contributions can not exceed the amount necessary to provide for the qualified education expenses of the beneficiary.” This gives some leeway, especially because the cost of college continues to rise. Most of us won’t hit those caps, but it’s nice to know you’re unlikely to “out-save” the account. Even if college ends up costing more than you expected, a 529 can handle it if you have the means to save that much. But also be aware that “there may be gift tax consequences if your contributions, plus any other gifts, to a particular beneficiary exceed $14,000 during the year.” Talk to your tax advisor for more information when the time comes!
Family and friends can help: Remember those birthdays and holidays when relatives insist on gifting something to your child? With a 529 plan, you can suggest an alternative to yet another toy. Many 529 plans offer gifting portals or codes, making it easy for grandparents, aunts, uncles, and friends to contribute to the college fund as a gift. Loved ones often want to help with your child’s future, and a 529 contribution is a meaningful gift that will have a lasting impact. Even outside of formal gifting features, anyone can contribute to a 529 plan you own – there’s no requirement that only parents put in money. It truly can be a family effort to invest in a child’s education (again, just keep an eye on the gift tax consequences of any big outside contributions).

With tax-free growth, potential state tax breaks, flexibility, and the ability to harness compounding over many years, 529 plans are a hard-to-beat tool for college savings. They’re not the only way – some people use Coverdell ESAs, custodial accounts, or even plain investment accounts – but 529s are popular for good reason.

Tips to Start Saving Now (No Matter Your Child’s Age)

Ready to get started? Here are some practical tips for getting started with college savings, whatever age your child is:

Open a dedicated college savings account. Having a separate account earmarked for college makes it easier to stay on track. A 529 college savings plan is often the best choice due to the tax benefits discussed above. Do a bit of research on your state’s plan (and others) and pick one that suits your family. Opening an account is usually simple – you can enroll online. Once it’s open, you’ve taken the crucial first step!
Start small and make it automatic. The key is to start now, even if you can only put aside a modest amount. You don’t need a huge lump sum to begin saving – many 529 plans have low minimums (often $25 or so to start). Even $25 or $50 a month helps build the habit and adds up over time. Set up automatic monthly contributions or payroll deductions if possible, so your savings happen on autopilot.
Invite friends and family to chip in. Make saving for college a family affair. When birthdays and holidays roll around, let loved ones know that contributions to the college fund are a valued gift. It’s truly a gift that lasts far longer than the latest toy or gadget.
Boost contributions when you can. Try to increase your savings rate as your finances allow. Got a raise or a bonus? Consider putting a slice of it into the college fund. Finished paying off your car or a daycare bill? Redirect that freed-up monthly amount into college savings. As your child grows, you might also get a clearer picture of their college plans (public vs. private, etc.) and can adjust your goal. It’s okay if you can’t save the “ideal” amount from day one – very few people can. The idea is to start with what you can, then ramp up contributions over the years when possible. Each bump in savings will get you closer to your target.
Keep perspective and don’t be afraid to start late. Maybe you’re reading this and your child is already in middle school or high school with little saved so far – don’t panic! It’s never too late to start. You can still take advantage of a 529 plan’s benefits even if college is just around the corner. Any amount saved now will reduce what your child might need to borrow in student loans later. So even if you feel behind, remember that every dollar saved is helpful. The worst thing to do is nothing at all. Start now, do what you can, and know that you’re making a positive difference for your child’s future.

Final Thoughts

Saving for college can seem daunting, but by starting early (and contributing consistently), you harness time and interest in your favor. The sooner you begin, the more gentle the savings journey can be – and the less strain you’ll feel when those tuition bills arrive. And if early years have passed you by, remember it’s still worthwhile to jump in now, because a late start is better than no start at all.

College may be expensive, but with an early start and a smart strategy, you’ve got this. Your future college grad will thank you, and you’ll thank yourself, too.

Happy saving! Here’s to turning those pennies into a college diploma one step at a time.

‍

¹5 Reasons It Pays to Start Saving for College Early

²2024 Publication 970, page 53