It’s Never Too Early for College Financial Planning

June 25, 2019


College tuition costs have risen significantly in recent years and there’s no indication that that trend will change in the foreseeable future. This has presented a huge financial challenge for parents of newborns and teenagers alike. Many parents of newborns who themselves are saddled with student loan debt have greater awareness and anxiety over what higher-education costs may be in the future.


Let’s take a look at how parents of newborns and young children can ease their fears and find the best options for college funding.


College Financial Planning for Baby


It’s never too early to start a college fund for your child; the clock to their first tuition due date starts ticking the moment they are born. If you have a newborn or toddler and you’re already thinking about how to pay for college, congratulations; you’re ahead of the game. When starting early, time is on your side. You can save a large amount in manageable monthly deposits and reap the advantage of compounding interest and market growth over 18 years.


Although many parents tend to make their children a priority, it is not advisable to begin saving for college until the rest of your personal finances are in order. Ideally, you will have paid off debt, put aside an emergency fund, and are on track with your retirement savings.


When you’re ready to start a college savings fund, the following types of accounts are your best options:


529 Plan


One of the most popular and well-known college savings plans is the 529 Plan. A 529 Plan is an educational savings plan that allows you to put money aside for college expenses, exempt from federal taxes, and the money grows tax-free. In short, it is a way for you to grow your savings on behalf of a beneficiary, such as your child or grandchild.


There are two types of 529 Plans: a college savings plan, which is similar to an IRA, and a prepaid tuition plan that enables you to pay for expenses at designated institutions in advance. Generally, there are not any income limits or age restrictions for participation and, depending on your state, you may be able to contribute up to $300,000. The funds must be used for specific higher-education expenses and can be rolled to a different beneficiary if the intended beneficiary decides not to attend college or vocational school.


Educational Savings Account (ESA) or Educational IRA


If you meet certain income restrictions, you have the option to open an Educational Savings Account for your college-bound children. In each ESA, you can save up to $2,000, after tax, per child each year.

The funds in an ESA grow tax-free and you do not have to pay taxes when the money is withdrawn to cover educational expenses. The ESA full savings amount has to be used for higher-education expenses and they must be used by the beneficiary by age 30.


Uniform Transfer to Minors Act (UTMA) or Uniform Gift to Minors Act (UGMA)


The Uniform Transfer to Minors Act (UTMA) and Uniform Gift to Minors Act (UGMA) are not specifically for education savings funds but can be utilized to a child’s advantage when it comes to paying for education.

The UTMA or UGMA enables a minor to receive money or other items of value without the aid of a guardian or trustee and shields the minor from tax consequences of the gifts until they reach the legal age of 18 or 21. Keep in mind that these funds will be taken into consideration if the child applies for financial aid.  




Financial planning for college is challenging. Knowing the future cost of tuition, room and board, books, travel, and other expenses may seem impossible. When the time comes it can be a financial burden, even if you have planned. But by saving early, planning and staying dedicated, the challenge of paying for higher education is an achievable goal.


A financial advisor can help you decide which college savings fund option is best for your family’s needs and financial circumstances.


You can read our article on What to Do If You Didn’t Save Enough for Your Child’s College Education to find out how parents with teenagers and college-aged children can determine the various options available to help them pay for their child’s schooling when up against a deadline.




Julie Bray, CFP® is the President and a Client Wealth Manager at GW Financial, Inc (GWF) in Orange County and Palm Desert, California. GWF is an independent, fee-only wealth management and financial planning firm specializing in advising and engaging individuals, families, and organizations. They focus on coaching clients toward financial peace of mind through financial education, clear communication, and smart resolutions.


Content in this material is for general information only and are not intended to provide specific advice or recommendations for any individual.


Prior to investing in a 529 Plan, investors should consider whether the investor's or designated beneficiary's home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in such state's qualified tuition program. Withdrawals used for qualified expenses are federally tax-free. Tax treatment at the state level may vary. Please consult with your tax advisor before investing.


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