It’s common knowledge among parents that college isn’t cheap—the average cost of tuition and fees for the 2023–2024 school year is $10,662 for public colleges and $42,162 for private colleges.

The staggering prices of tuition often leave parents wondering what the best way to save for kids’ college is. Although starting a college fund for kids early gives you better chances of saving enough money, there are other ways to secure funds, even without opening a college savings account as soon as your child is born.

Our detailed guide will show you how to start a college fund for a child, including the available college fund options and other money-saving tips to ensure you can cover your child’s college tuition.

How To Save Money for Kids’ College

Savings accounts are among the most popular methods of collecting money for college. In fact, statistics show that 30% of parents choose the 529 plans, 22% opt for general savings accounts, and 14% rely on investment accounts to save money for their child’s college. If you’re unsure where to start with your savings, consider these options:

• Designate a savings account as a college fund—Open an account where you’ll deposit any extra cash or gifts from family and friends and earn back more money for college through accumulated interest
• Set a financial goal and make deposits regularly—Consider saving a routine task and set up automatic deposits to simplify the process. Regardless of how small your contribution may be, it will add up over time
• Explore tax-advantaged plans—Start saving money with programs designed specifically for college funds, like the 529 college savings plans

Best College Saving Accounts for Children

Saving for kids’ college doesn’t have to be a financial burden—there are several college saving accounts for children that come with their own rules and tax consequences, so you can choose the one that best fits your needs. You can also have more than one savings account, depending on how your finances change over the years. 

The top four college saving plans for children are:

1. 529 Plan
2. Roth IRA
3. Custodial account
4. Coverdell ESA

529 Plan

529 plans are tax-friendly programs that help you save for your child’s primary, secondary, or college education. These plans have no household income restrictions, contribution limits, or minimum distributions. Here’s how a child college fund with a 529 plan works:

1. You choose a 529 plan and open an account 
2. You make contributions to the account
3. Your money is invested over the years

If you opt for one of these plans, the money you withdraw for college expenses won’t be taxed because many states let you deduct your contributions from the state income tax. However, if you use the money for expenses unrelated to college, only the money you contributed won’t be taxed. Because 529 plans are low-risk, you’ll also have a high chance of getting a return on your investments, which will be exempt from federal taxes if used for education-related expenses.

There are two types of 529 plans—check the following table for details:

Plan	Features
Education savings plan	For this plan, you need to name your child as a beneficiary and make contributions on their behalf. When they go to college, they can use the funds to pay for higher education expenses like tuition, fees, room, and board
Prepaid tuition plan	This plan lets you pay in advance for units and credits at a chosen university, typically an in-state public school. It’s used to prepay future tuition and fees at the current price, and it can’t be used to fund any other college expenses. If your child opts for a private university or an out-of-state school instead, they can still use the money for fees and tuition

529 plans vary from state to state in terms of investment portfolio options, but the good news is that you can choose the plan of the state that best fits your needs. For example, if you live in Ohio and you find out that Rhode Island provides higher returns for college savers, you can have your plan with that state instead.

Roth IRA

A Roth Individual Retirement Account (IRA) is primarily used to save money for retirement, but you can also use it as a college fund for children. Any withdrawals from a Roth IRA account, including any return you made on your contributions, are tax-free after you turn 59½.

If you want to make a withdrawal before the age of 59½, you’ll get a 10% penalty of the withdrawn amount on your earnings but not on your contribution. You’re free to withdraw your contributions tax-free at any time, no matter your age. However, a tax-free return of contributions will be reported as untaxed income on the financial aid application form, which may reduce your child’s eligibility for FAFSA. 

The annual contribution limit to a Roth IRA is $6,500 ($7,500 if you’re 50 or older), but the limit can be reduced depending on your income.

Custodial Account

A custodial account is a savings account that you can control on behalf of your child until they reach legal age. These include the Uniform Gifts to Minors Act (UGMA) and Uniform Transfers to Minors Act (UTMA) accounts, which let you set up a trust fund for a minor child or a grandchild. 

Like the 529 plans, you manage the custodial account until your child reaches the age of 18, 19, or 21, depending on the state. After that, they gain ownership of the account and can use the funds as they wish. 

There are no penalties for withdrawals from custodial accounts if you use the money for the child’s benefit, but the return you earn is taxed at the child’s rate because they own the account. There aren’t any annual contribution limits or household income restrictions, but you can’t change the beneficiary of the account.

Coverdell ESA

A Coverdell Education Savings Account (ESA) is an investment account used to save funds for your child’s education. This account isn’t limited to college funding—you can also use it for education-related expenses for elementary or secondary school. To set up an account, you need to choose a beneficiary and decide how to invest the money. There’s no tax on your contributions or deductions if you use the fund to pay for education expenses.

Coverdell accounts come with certain rules and limitations:

• You must stop making contributions when your child turns 18, and the money must be used by the time they turn 30
• Since 2022, the contribution limit is $2,000 per beneficiary, but there may be stricter limits for high-earning households
• You can contribute to an account if your modified adjusted gross income (MAGI) is less than $110,000 a year or $220,000 if you’re married and have a joint account
• There’s a reduced contribution amount limit if your income ranges from $95,000 to $110,000 or $190,000 to $220,000 for married couples with a joint account
• There’s a 10% penalty if the money is used for nonqualified expenses

How To Open a College Savings Account for a Child

Starting a college fund for kids requires a lot of planning. You need to decide on the savings plan and familiarize yourself with all its rules and requirements, which may seem overwhelming. However, learning how the process works beforehand may make opening a college savings account easier. Since 529 plans are the most popular among parents, we’ll use them to illustrate how to start a college fund. Here are the basic steps:

1. Pick a plan
2. Choose your account type
3. Complete an application
4. Fund the account
5. Consider your investment options

Pick a Plan

When picking the best 529 plan for your needs, start with the plans offered in your state because they may have special benefits for the residents, such as state income tax deductions on contributions. If none of these plans fit your needs, explore other states’ plans. In that case, consider these questions:

• Do investment options match your goals and preferred level of risk?
• Did investment portfolios perform well in the past?
• Which specific rules and restrictions does the plan include?

Choose Your Account Type

You can choose from two types of accounts—individual and custodial. The former is a regular 529 plan account where the parent is the account owner, and the child is the beneficiary. Meanwhile, in the latter, the child is both the owner and the beneficiary, but their account is managed by the parent until they reach legal age.

Complete an Application

To enroll in a 529 plan, you should do the following:

1. Choose a plan and click on “Enroll” or a similar button indicating you want to proceed with opening an account
2. Provide the necessary information like your and your child’s name, address, date of birth, and Social Security number (SSN)
3. Pay a small fee if required (for example, in Washington State, the fee is $25)

Fund the Account

With everything in place, it’s time to make your initial contribution to the account. The sooner you start, the better—this will help you maximize the return on your investments. You can transfer money electronically, mail a check to the 529 program administrators, or set up automatic contributions so you can keep funding your account without worrying about missing a payment.

Consider Your Investment Options

When choosing your investment portfolio, opt for the investment mix that won’t be a financial burden and has enough growth potential to help you reach your objectives. Most parents choose an age-based portfolio that includes a mix of stocks, bonds, and short-term investments. It starts with a higher risk and later shifts to a lower-risk investment profile as the child’s time for college approaches.

Other Ways of Saving for Kids’ College

Besides opening a college fund for kids, there are other ways you can save money for college, like opening an account for children that is not only a college fund or obtaining loans. Regardless of the savings option you choose, starting early is essential—the earlier you start, the more money you’ll save.

Here’s how to save for kids’ college without opening a college savings account:

• Put money into savings bonds—Buying savings bonds online, redeeming them, and using them to pay for college is a great way to cover tuition because the money is guaranteed by the government, and there’s almost no risk involved. However, the interest you’ll earn is quite low
• Obtain a home equity loan—Borrowing money and using your home as collateral allows you to repay the loan with a fixed-rate interest over a certain period of time. If you’re out of options, you can use this money as a college fund for kids
• Obtain a permanent life insurance policy—High-net-worth families usually split the money from their life insurance policy. A certain sum goes into the death benefit and another sum into a tax-deferred savings account, allowing you to access the money at any time and for any reason

Apply for Financial Aid

Besides saving money for college in advance, you can also apply for financial aid as college funds like 529 plans have little to no effect on your financial aid eligibility. A form of financial aid that both you and your child can apply for is student loans, including private student loans and Direct PLUS loans. However, one of the most important factors that can affect your chances of getting these is your credit score. Unlike FAFSA, these loans require a credit check, so if you or your child’s credit score doesn’t meet the lender’s standards, you may not get the loan.

A strong credit score can significantly improve your child’s chances of getting a loan with favorable interest rates and terms. A great way to boost their chances is to start building credit early with a credit building service like FreeKick, which can help you establish a strong credit profile for your child starting as early as the age of 13.

FreeKick—The Best Solution for Credit Building and ID Protection

Provided by Austin Capital Bank, FreeKick is an FDIC-insured deposit account that offers services like credit building, credit profile monitoring, and identity protection to keep your whole family safe. The platform provides great support in building credit for young adults and minors between the ages of 13 and 25.

Parent-Sponsored Credit Building With FreeKick

Like setting up a college fund, starting your child’s credit-building journey early helps you ensure they have more options for getting financial aid and securing a better financial future. By establishing a strong credit profile from a young age, you can help your child save over $200,000 in their lifetime. 

Since the CARD Act of 2009 prohibits issuing credit cards to those under 21, FreeKick helps get around this limitation by letting you start your child’s credit history from the age of 13 through parent-sponsored credit building. Here’s how to get started:

1. Create an Account—Visit the FreeKick.bank and pick a plan that fits your needs and budget
2. Set It and Forget It—When the account is activated, FreeKick automatically starts building your child’s credit over the next 12-month period
3. Keep Growing—After the initial 12 months pass, you can either renew the account and keep building your child’s credit or close it and get your full deposit back

Identity Protection With FreeKick

Identity thieves often target college students because they’re the ones who are the least concerned about their identity being stolen. In fact, according to a recent survey, over 64% expressed minimal concern over identity fraud.

Since a child’s identity is stolen every 30 seconds, FreeKick offers comprehensive security features for protecting both adults and minors:

Services for Adult Children and Parents	Services for Minor Children
Credit profile monitoring SSN monitoring Dark web monitoring for personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Lost wallet protection Court records monitoring Change of address monitoring Non-credit (Payday) loan monitoring Free FICO® Score monthly FICO® Score factors Experian credit report monthly	Credit profile monitoring SSN monitoring Dark web monitoring for children’s personal information Up to $1 million identity theft insurance Full-service white-glove concierge credit restoration Sex offender monitoring—based on sponsor parent’s address

FreeKick Pricing

FreeKick offers plans that cover every family’s budget. Both plans include credit building for up to six children and identity protection services for two adult parents and six children. Plus, both deposits are FDIC-insured up to $250,000. See the details in the table below:

FDIC-Insured Deposit Amount	Plan Fee
$3,000	$0 (Free)
No deposit	$149/year

Build strong credit to secure your child’s financial future and protect your entire family from identity theft—sign up for FreeKick today.