Is it ever too early to start saving for college?

Kathryn Flynn
By: Kathryn Flynn

Many new parents hesitate to open a 529 plan because they want to plan for their retirement first or they are unsure about the future. But, each day you wait to start saving for college you miss out on potential earnings growth in your 529 plan account. To get the most out of your 529 plan, the best time to start saving for college is right now.

Waiting to start saving can cost you

The earlier you start saving in a 529 plan, the more time your money has to grow tax-free. Parents who start saving when their child is born will accumulate a larger portion of their college savings goal from investment earnings.

For example, if you start saving for college when the baby is born, about a third of your college savings goal will come from earnings. But, if you wait to start saving until your child enters high school, less than 10% of your balance will come from earnings. That means you’ll need to save six times as much per month to reach the same college savings goal.

You don’t have to wait until you become a parent to start saving for college. Expecting parents can get a head start by enrolling in a 529 plan before their child is born and including details about the 529 plan on their baby shower gift registry.

You can save for retirement and college

Some parents are hesitant to start saving for college because they’re focused on saving for retirement. But, instead of deciding between saving for college and saving for retirement, why not do both?

Look for ways to maximize the value of your retirement account. If your employer offers a 401(k) match, contribute at least enough to earn the maximum company matching contribution. If you are self-employed, or don’t have access to an employer-sponsored retirement plan, consider saving in tax-advantaged account such as an IRA or Roth IRA. A retirement savings calculator can help you determine how much you need to save in order to reach your goal.

Once you’re on track to meet your retirement savings goal, you can simultaneously make contributions to a 529 plan to save for college. Don’t worry if you can’t afford to make regular monthly contributions. You can contribute as much as you want, whenever you want. Fill any college savings gaps with raises, bonuses or monetary gifts your child receives for birthdays or holidays. Your state may also offer an income tax credit or deduction for 529 plan contributions. The tax savings can be reinvested in the 529 plan to grow tax-free until it’s time to pay for college.

Consider enrolling in a 529 plan, even if you’re not sure about college

If you’re unsure which college or type of college your child will attend (if any), there are still benefits to starting to save early. Funds can be withdrawn tax-free from a 529 plan to pay for any eligible post-secondary institution, including private and public colleges, graduate school, community colleges and trade schools.

If your child decides not to attend college, you can change the 529 plan beneficiary to a sibling or other qualifying family member or save the funds for a future grandchild. If you have no other use for the money, you can always take a non-qualified distribution at any time for any reason. You will incur income tax and a 10% penalty on the earnings portion of the withdrawal, but the impact of the penalties may be less than you expect.

Some financial experts recommend using a Roth IRA to save for college, since the 10% penalty tax on non-qualified withdrawals is waived when the funds are used to pay for higher education expenses. But remember, a Roth IRA is designed to save for retirement, not college. While there are similarities between a Roth IRA and a 529 plan, 529 plans are treated more favorably by college financial aid formulas.

Find your 529 plan - Select your state below

Did you know that residents are not limited to investing in their own state's plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state's plan and other options.

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Find a 529 Plan. Select your state below.

Did you know that residents are not limited to investing in their own state’s plan? Another state may offer a plan that performs better and has lower fees. Select your state below to see your state’s plan and other options.

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Kathryn Flynn

Kathryn Flynn

Content Director

Kathryn is Content Director at She has been quoted in financial publications including the Wall Street Journal, the NY Times, Fortune, Money and GOBankingRates, and has been an expert guest on personal finance podcasts. Prior to, Kathryn worked in product marketing at Henderson Global Investors (now Janus Henderson Investors), a global asset manager. She earned her MBA with Finance Concentration from DePaul University's Kellstadt Graduate School of Business, and has prior FINRA Series 7 and 63 licenses. Kathryn has 529 college savings plans for each of her three children, and enjoys creating content to help other families prepare for future higher education costs.

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