Saving for College
Start Where You Are. Build From There.
Paying for education after high school doesn't begin with the FAFSA.
Saving ahead of time can give you more options when it's time to pay for college, career training, or other education after high school. Even if you can't save enough to cover the entire cost, money set aside now can reduce how much you'll need to cover later through income, financial aid, or student loans.
You don't need to have a perfect savings plan to get started. Start with what your budget allows and build from there.
Why Saving Matters
College costs are usually covered through a combination of resources.
Your plan might eventually include:
- Student and family savings
- Current family income
- Scholarships and grants
- Student earnings
- Payment plans
- Financial aid
- Student loans, if needed
Savings give you another resource to draw from when the time comes to build that plan.
Money saved ahead of time might help cover tuition and fees, books and supplies, housing and food, transportation, technology, or other eligible education expenses, depending on the type of account and its rules.
Start Early—But Don't Let a Late Start Stop You
The earlier you begin saving, the more time your money has to grow.
But there isn't a point when it's "too late" for saving to matter.
If college is several years away, regular contributions can build over time.
If college is approaching, savings can still help with expenses such as:
- Application or enrollment expenses
- Books and supplies
- Technology
- Transportation
- Housing deposits
- Other education-related costs
The goal doesn't have to be save enough to pay for everything.
A more realistic goal may be:
Save what you reasonably can so you'll have fewer expenses to cover later.
Make Saving Part of Your Budget
Saving tends to be easier when it's intentional.
Consider:
- Setting a monthly savings goal
- Automating regular contributions
- Saving part of bonuses, tax refunds, gifts, or other occasional income
- Increasing contributions when your financial situation allows
- Inviting family members to contribute for birthdays or other occasions
- Reviewing your savings goal periodically as education plans become clearer
Small, consistent contributions can be more manageable than waiting until you have a large amount available to save.
Explore Education Savings Accounts
529 College Savings Plans
A 529 plan, also called a qualified tuition program, is a tax-advantaged account designed to help families save for qualified education expenses.
529 plans are sponsored by states or other eligible entities, and specific plan features vary.
Depending on the plan and how the money is used, benefits may include:
- Tax-deferred growth
- Tax-free withdrawals for qualified education expenses
- State tax benefits for eligible contributors
- Contributions from parents, grandparents, relatives, friends, or others
- Use at many eligible education and training programs
Rules determine which expenses qualify and how withdrawals are treated, so understand the plan before contributing or using the funds.
For Iowa Families
College Savings Iowa is Iowa's 529 education savings plan.
Iowa taxpayers may be eligible for state tax benefits when contributing, subject to current program and tax rules.
Explore College Savings Iowa →
Consider Other Savings Options
A 529 isn't the only way to save for education.
Depending on your family's circumstances and financial goals, other options may include:
Coverdell Education Savings Accounts
A Coverdell Education Savings Account (ESA) is another tax-advantaged account that can be used for certain qualified education expenses.
Contribution and eligibility limits apply, so families should understand the current rules before choosing this option.
Custodial Accounts
Accounts established under the Uniform Gifts to Minors Act (UGMA) or Uniform Transfers to Minors Act (UTMA) allow an adult to hold assets for a minor.
These accounts aren't specifically education accounts, and ownership, financial aid, tax, and other considerations may differ from education-specific savings plans.
Other Savings & Investment Accounts
Families may also use traditional savings or investment accounts as part of their education savings strategy.
Different types of accounts have different tax treatment, investment risk, ownership rules, and restrictions.
Consider your complete financial situation rather than choosing an account based only on its potential education benefits.
Don't Sacrifice Your Entire Financial Plan
Saving for education is important, but it isn't your family's only financial responsibility.
Consider education savings alongside priorities such as:
- Everyday living expenses
- Emergency savings
- Paying down high-interest debt
- Retirement savings
- Insurance and health expenses
- Other long-term financial goals
There isn't one contribution amount that's right for every family.
Build a savings strategy that fits your overall financial situation and can realistically be maintained.
As College Gets Closer, Estimate the Cost
Your savings goal can become more specific as a student's plans develop.
Begin researching:
- Types of education and training being considered
- Current costs
- Potential scholarships and grants
- What your family may reasonably be able to contribute
- How much has already been saved
- The remaining amount you'll need to cover
Remember that the published price of a college isn't necessarily what you'll ultimately pay.
Learn About College Costs & Net Price →
Understand How Savings Fit With Financial Aid
Having money saved for college doesn't mean you shouldn't apply for financial aid.
Complete the FAFSA when the student becomes eligible and explore scholarships, grants, and other financial aid opportunities regardless of how much your family has saved.
Education savings are one part of a larger plan to pay.
As college approaches, your goal becomes combining available resources to create an affordable plan while limiting unnecessary borrowing.
Learn About the FAFSA →
Explore Scholarships & Grants →
Know the Rules Before You Use the Money
Different savings accounts have different rules about:
- Who owns the account
- Who can be the beneficiary
- Contribution limits
- Tax treatment
- Qualified expenses
- Changing beneficiaries
- Withdrawals
- What happens to unused funds
Rules can also change over time.
Before opening an account, making a major contribution, or withdrawing money, review current information from the plan provider and appropriate tax or financial professionals.
Don't Forget Education Tax Benefits
Saving Isn't the Only Way the Tax Code May Help
When you're actually paying for education, eligible taxpayers may qualify for federal education tax benefits.
These may include:
American Opportunity Tax Credit (AOTC)
A federal tax credit available to eligible taxpayers for certain qualified expenses during the first years of postsecondary education.
Lifetime Learning Credit (LLC)
A federal tax credit that may be available for qualified tuition and related expenses for eligible students.
Student Loan Interest Deduction
Eligible taxpayers may be able to deduct qualifying interest paid on student loans.
Eligibility, income limits, qualified expenses, and other requirements apply and can change.
Explore Current Education Tax Benefits from the IRS →
Build Your College Savings Strategy
You don't need to know exactly where a student will attend or what education will eventually cost to begin preparing.
Start with what you can afford.
Saving something can still make a difference.
Choose the right savings approach.
Understand the benefits and rules of the accounts you're considering.
Save consistently when possible.
Make education savings part of your larger financial plan.
Adjust as plans become clearer.
Revisit your savings goals as you learn more about future education and training options.
Keep financial aid in the plan.
Savings, scholarships, grants, income, financial aid, and other resources can all work together.
The goal isn't necessarily to save enough to pay for everything.
It's to give yourself more options—and fewer costs to cover later.
