College Savings Tips for Working Parents

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Kathryn Flynn

By Kathryn Flynn

March 1, 2019

The cost of raising a child from birth to age 17 has risen to $233,610, not including college savings. Even households with two working parents may struggle to find room in their budget for 529 plan contributions. But, there are ways working parents can take advantage of their additional income to cover a child’s future college costs.

Redirect day care funds to a 529 plan

Parents can open a 529 plan before the child is born, deposit any baby shower or gifts and set up an automatic investment plan. As soon as the child is potty-trained, they may increase monthly 529 plan contributions using money that was previously spent on diapers.

The next way to boost college savings is to increase 529 plan contributions when a child enters first grade and no longer needs full-time day care. According to a 2018 report from Child Care Aware of America, in 29 states (including the District of Columbia) the cost of infant care is greater than the average cost of tuition at an in-state public college. Data from the New America Foundation shows the annual cost of full-time child care to be almost $9,600.

If day care costs are redirected to a 529 plan, the parents could meet their college savings goal sooner and a larger percentage of the balance will come from earnings over time. Funds invested in a 529 plan grow tax-deferred and can be withdrawn tax-free to pay for qualified higher education expenses.

Working parents may still have to pay for after-school and summer care until the child enters middle school and no longer needs adult supervision. The age requirement will vary by municipality but is usually between 10 and 13 years old. But, parents who redirect even some of the full-time day care costs will still be able to save more for college than parents who don’t increase contributions.

Example 1: Working parents with a child in day care paying $800 per month are able to save $200 per month in a 529 plan from birth to college. They will accumulate around $78,000 in savings, assuming a 6% annual investment return.

Example 2: Working parents with a child in day care paying $800 per month are able to save $200 per month in a 529 plan until the child is 6 years old and enters first grade.

Starting at age 6, the child attends the school’s before and after school care programs, which cost approximately $450 per month, and a summer care program, which costs $1,000.

Since they are paying less for child care now that the child is in full-day school, they are able to redirect a portion of the day care costs to their 529 plan when the child is 6.

When the child enters middle school and no longer needs adult supervision, the parents can redirect the costs of before and after school care and summer care to the 529 plan.

By using the strategy in Example 2, parents would be able to save $57,000 more for college (assuming a 6% annual investment return) than in Example 1:



529 Plan Balance

Monthly Day Care Cost (ages 0-5)



Monthly Before and After School Care Costs (ages 6-12)



Monthly Summer Care Cost (ages 6-12)



Original 529 Plan Contribution (ages 0-5)



Increased 529 Plan Contribution (ages 6-12)

$200 +$267 = $467


Increased 529 Plan Contribution (ages 13-17)

$533 + $467 = $1000


Total 529 Plan Savings (ages 0-17)




Parents should aim to save one-third of projected college costs, and plan to cover the rest with current income and student loans.

Find alternatives to day care

Working parents may be able to reach their goal even sooner by eliminating day care costs all together. One option is to split shifts so that one parents is always home with the child while the other parent works. For example, if one parent is a firefighter or a nurse they may work overnight and return home in time for the other parent to leave for work in the morning. Although the schedule may be tough to manage, the thousands of dollars saved in childcare expenses could be put toward college savings.

One parent may also consider working from home to cut down on child care costs. The need for full-time day care may be eliminated if the parent no longer commutes to work and they are able to work while the baby naps. If that isn’t realistic, the parent may have a neighbor or relative watch the child while they work or change to a part-time schedule. 

It may make sense for one parent to leave the workforce all together for a few years until the child enters full-day school. While there are many factors to consider before making the decision to have one parent stay home, you can start by looking at costs. The U.S. Department of Health and Human Services recommends keeping day care costs at or below 10% of the household budget. That means to afford day care for one child at the average cost of $9,600, parents’ combined income should be at least $96,000.

The Child Care for Working Families Act introduced by Washington Sen. Patty Murray (D) aims to make child care more affordable for families. If passed, families earning less than 150% of median income in their state would pay no more than 7% of their household income on child care.

Use one parent’s income to fund a 529 plan

Another option is for working parents to live off one income until they have enough money saved for the child’s college education. The income of the parent who would otherwise have stayed home with the baby will be dedicated to college savings. The net income after subtracting taxes and daycare costs will be deposited into the children’s 529 plans.


A good place to start:

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