Opening a college savings account is a smart way to establish an education fund for your child, a friend or even yourself. These accounts, including 529 plans and Education Savings Accounts (ESAs), can offer tax benefits, too. But which account is right for you? When should you start saving? And how do you factor in potential scholarships and financial aid? Your Edward Jones financial advisor can work with you to personalize a college savings approach that aligns with your college savings goals and timing.

Saving for your kids’ college

Before diving in to what college savings approach is best for you, take a step back and think about how much of college costs you want to cover. Will you pay for all your child's college expenses? Half of everything? Tuition but not room and board? While there isn't one right answer to these questions, you should decide what works best for your family’s personal and financial situation.

Once you've determined your role in providing for education, consider what type of school your child may want to attend – private or public? Also consider how long your child may need to be in school based on the type of degree or advanced degree they may need, as this, too, will have bearing on costs. It may be helpful to have a range of options if you don't know the answer right now.

 Cost of Attendance per Year

Source:, Trends in College Pricing 2020 and Edward Jones estimates

Amounts represent one year of education expenses, including tuition and room and board for in-state public and four-year private universities. Community college does not include room and board. Assumes 4% annual inflation rate. Rounded to the nearest hundred.

When do I start a college savings fund for my child?

Once you determine your role in providing for education, you and your financial advisor can talk about how much you need to save and work out a plan to help get you there. Keep in mind time can be one of your biggest assets, so don’t delay. Saving a certain amount every month can make a big difference in reaching your goal. And if you’re starting later, that's OK. Start now – so you can get back on track.

How to start a college fund for my child

One college savings approach many families adopt is to start investing money that was dedicated to daycare expenses. For example, once you no longer have daycare expenses, invest those dollars into a college savings plan like a 529 plan. This chart shows the difference between saving:

 Cost of Attendance per Year

Source: Edward Jones

This graph shows the amount you save each month and when you start saving for a child can make a real difference. The green line shows you'll accumulate $23,000 if you put aside $100 per month for a child from age 5 to age 18. The blue line shows you'll accumulate $38,000 if you put aside $100 per month starting at birth through age 18. The red lines show you'll accumulate $105,000 if you put aside an additional $300 per month from age 5 to age 18. Calculations assume saving $100 a month until the child reaches age 18, with an annual rate of return of 7% at age 10, 6% at age 16, and 3% at age 18. Numbers rounded to nearest thousand. This graph is for illustrative purposes only and does not represent any currently available investments.

Your college savings options

There are a variety of ways to save for higher education. Here are some characteristics of some common options.

529 Education Savings Plan

  • Anyone can contribute
  • Maximum contribution limits vary by plan
  • Account owner has control
  • Earnings accumulate tax-free
  • Qualified education expenses are free from federal income tax
  • State tax benefits may also be available

Custodial Account

  • Anyone can contribute1
  • No contribution limits, yet gift tax consequences apply
  • Custodian has control until the beneficiary becomes legal age
  • A portion of the income may be offset by the standard deduction; some income may be taxed at beneficiary and/or estate and trust rate
  • Distributions must be solely for the beneficiary – no limitations otherwise

Coverdell Education Savings Account

  • Anyone can contribute, although certain income limitations may apply
  • Contributions cannot exceed $2,000 per year, per beneficiary, from all sources
  • The account owner is in control, although the beneficiary may gain control at legal age, depending on the plan provider
  • Earnings generally accumulate tax-free
  • Qualified education expenses including primary and secondary education federally tax-free

College savings and financial aid

Did you know that only one student of every 300 will receive a full scholarship to college?2 Most aid comes in the form of student grants and loans.

  • Federal grants don’t need to be repaid but are typically designed for low-income families. So, many students don’t qualify.
  • Student loans, which are much more common, have to be repaid within a certain time frame and incur interest – with interest rates that are reset each year according to U.S. Treasury rates.

Some families worry that contributing to a 529 plan or other savings plans may hurt their chances of receiving financial aid. In reality, up to 5.64% of parent-owned assets – excluding qualified retirement assets, your primary residence and insurance policies – are considered in financial aid calculation, according to the U.S. Department of Education. Your financial advisor can show you different ways to save for education and will explain how different ways of saving may affect your overall financial strategy.

Federal financial aid is need-based and determined by one equation:

Cost of Attendance (COA) - Expected Family Contribution (EFC) = Financial Need

All families applying for financial aid must complete the Free Application for Federal Student Aid (FAFSA). You can apply as early as Oct. 1 of your child's senior year in high school and the deadline to complete the FAFSA varies by state. Based on the information you provide in your FAFSA, the Federal Student Aid Office will determine your Expected Family Contribution (EFC). This is subtracted from a school's cost of attendance (COA) to determine your child’s financial need. However, this need doesn't necessarily guarantee you'll receive that amount in financial aid.

The COA is the total cost of attending a particular school for one year. It includes tuition and fees, room and board, books and supplies, and transportation to and from school.

We can help

Don't be overwhelmed by the potential costs of college. Your Edward Jones financial advisor can look at your entire financial picture, including what other goals you are saving for (like retirement), so your college savings strategy makes sense for your family.

Important information:

1 Single filers: MAGI of $95,000–$110,000, Joint filers: $190,000–$220,000. (Single and joint filers surpassing the respective limitation ceilings are ineligible to contribute.)

2 Secrets of Winning a Scholarship. Mark Kantrowitz, 2013.