Don’t be afraid to save for college

Don’t be afraid to save for college
Key takeaways
Scary: I can’t afford to save

Any amount can make a difference, particularly if you start when a child is young and save regularly. 

Scary: It’ll affect financial aid

In general, 529 plans have a minimal impact on financial aid; the potential benefits can outweigh the disadvantages.

Scary: Child doesn’t go to college

The money in a 529 plan can be used for many education-related expenses or transferred to another beneficiary.

October is all about Halloween and scary things. One thing not to be afraid of is saving for college in a 529 college savings plan. You may think you can’t afford to save, that a 529 plan hurts your child’s chances of getting financial aid, or it’ll be a waste if your child doesn’t go to college. Don’t let these things scare you and stop you from saving. Here’s why.

What may be scary: I can’t afford to save

Not so scary: Anything helps

Saving for college can seem daunting, particularly when you’re in the midst of raising your kids. But any amount of money, no matter how small, can add up. With compounding, even small contributions can make a difference, particularly if you start when a child is young and save regularly. For instance, a $50 monthly contribution, started when a child is born, could grow to more than $19,000 by the time they reach age 18.1 That could mean $19,000 less in loans. Think of it this way: Every dollar saved today is a dollar plus interest you may not have to borrow to pay for college. Loans add to the cost of college.

What may be scary: A 529 plan affects scholarships and financial aid

Not so scary: It doesn’t count as much as you think

Consider these somewhat scary stats2 about scholarships and financial aid, which underscore the need for saving:

  • Only 7% of students are likely to receive a scholarship.
  • Less than 2% of high school student-athletes are offered athletic scholarships.
  • The average government grant and scholarship is $13,690 annually.

Plus, most scholarships and grants are for tuition and fees and generally don’t cover room and board, textbooks and supplies, or meal plans.

In general, 529 plans have a minimal impact on financial aid, and their potential advantages can outweigh the disadvantages. For financial aid purposes, a parent-owned 529 plan counts as their asset and assumes a maximum of 5.64% of it will be used to pay for college. So, for every $10,000 in a 529 plan, the "expected family contribution" toward college costs could increase by only $564 at most. Also, prior-year parent income is used to determine financial aid eligibility. So, 529 plan withdrawals can help pay for a student’s first year of school without impacting financial aid for the second year.

Estimate how much to save with our College savings calculator.

What may be scary: The child doesn’t go to college

Not so scary: A 529 plan isn’t use it or lose it.

A 529 college savings plan can be used for more than college tuition and expenses. Tuition for vocational and technical programs and for the required textbooks, supplies, and laptops are qualified uses for funds from a 529 plan. Also, up to $10,000 per year can be used for elementary, middle school, and high school tuition for public, private, and religious schools.

A 529 plan can also be transferred to another beneficiary. It doesn’t have to be a family member — it can be anybody with educational needs — even an adult. Plus, starting in 2024, up to $35,000 in a 529 plan can be rolled over to a Roth IRA in the child’s name. It’s a way for that money to still be used for the child’s financial future. It also allows it to continue to grow tax-free and also be withdrawn tax­ and penalty-free in retirement.3 And finally, you can withdraw the money, but all earnings are considered taxable income and come with a 10% penalty if not used for education expenses.

College saving doesn’t have to be scary

Leave the scary stuff for Halloween. Save what you can for a child’s education. Learn more about saving for college and get answers to frequently asked questions. If you need help or have questions, contact your financial professional. See how to open a CollegeBound 529 Plan.


  • 1

    Hypothetical illustration doesn’t represent the performance of any specific investment. Assumes 5% growth on account balances every year over 5, 10, and 18 years. Compounded growth is defined as multiplying the account balance of any given year by 1.05 to show growth. There’s no compounded growth in the first year of contributions.

  • 2

    Scholarship Statistics, Education Data Initiative, 11/5/22,

  • 3

    Contributions can be withdrawn tax-free at any time. Investment earnings can be withdrawn tax-free as long as the account has been open for at least five years and you’re age 59½ or older, or the withdrawal is due to death, disability, or qualified first home purchase.

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