As per the U.S. According to an annual poll, tuition for the 2021-2022 academic year varied from $38,185 (for private universities) to $10,338 (for state colleges). If you are a new parent or have small kids, you should immediately start financial planning for your kids’ college education.

College fees will continue to rise unless something shifts in how people pay for learning.

Here are a few choices for saving for college if you're seeking ways to do so.

Open a 529 Plan

You've probably heard of 529 plans. The savings initiatives, which state governments typically support, encourage people to save for future educational expenses. They are frequently tax-friendly in that many states will allow you to deduct your contributions from your state income tax – and the funds will not be taxable when you withdraw them for university.

You can take up your own state's 529 plan or another state's plan that you like. However, open an account as soon as possible. The crucial thing, of course, is to continue contributing to your child's 529 plan every year, ideally monthly, to go ahead with your financial planning without any disruption.

Place Funds in a Custodial Account

Custodial accounts are savings accounts that are also known as UGMAs and UTMAs (Uniform Gift to Minors Act and Uniform Transfers to Minors Act). They hold nearly identical assets, such as cash, equities, and mutual funds, but UTMAs can also have tangible assets like property investments.

There is no limitation to how much you may put into a UGMA or UTMA, although this option is excellent for a responsible child. When your child reaches the age of 18, they will be legally entitled to spend the funds in the account for education or other purposes.

Purchase Mutual Funds

There is no limit to how much you can invest, and the funds do not have to be used for college. However, your earnings will be subject to periodic income taxes, profits will be taxed when stock is sold, and the mutual fund's assets may diminish your child's eligibility for financial assistance from the college.

Create a Roth IRA.

But wait, isn't a Roth IRA supposed to be for retirement? Yes, in most cases, but not permanently. As long as proper contributions are made, a Roth IRA is an excellent tool for many individuals to invest after-tax cash while protecting returns and growth prospects from taxes in perpetuity.

Consider the merits and risks carefully before you do comprehensive financial planning, as you would with any venture — for example, other relatives can give to a 529 plan but not a Roth IRA. You should consult with your financial consultant if you have one.

However, one significant advantage of a Roth IRA is that if a child decides not to pursue higher education, the family already has those assets for retirement.
Invest in Eligible Savings Bonds

You can purchase savings bonds online.

If you redeem them and use the money to pay for university education (except for room and board), you can deduct the income from their taxable year gross income. This, of course, is subject to some limitations.

One of the benefits of investing in savings bonds is that they are backed by the government and carry little or no risk.


Though it can be challenging to come up with a precise sum to save for your child's education, especially when hyperinflation and rising tuition expenses are considered, one option is to use the "one-third rule." As with any significant life cycle expenditure, the cost can be stretched over time, with one-third arriving from assets (past income), another third coming from current earnings, and the last third from financing (future payment).

When combined with the "3x rule," which states that the expense of a college education triples during the 17 years from birth to university enrollment, the one-third rule proposes that you draw a financial plan and set the entire cost of a multi-year higher education as your goal for the year your kid was born. You can split that figure by the number of years until your child begins university. The annual sum thus obtained can be divided into expected goals that can be used to save for an education fund.