Every parent wants to give their child the best possible future, and for many families, that includes higher education. But with tuition costs continuing to rise, figuring out how to pay for college can feel overwhelming. The good news? Starting a college fund early gives your savings more time to grow, making it easier to manage those future expenses.

529 Plans: A Popular Tool for College Savings

 When it comes to saving for a child’s education, 529 college savings plans are one of the most widely used and versatile options. These state-sponsored accounts are specifically designed to help families save for qualified education expenses, and contributions grow tax free as long as they’re used for qualified expenses. Because of their flexibility and tax advantages, they’re one of the most popular ways to save for college. Begin by evaluating your state’s 529 plan, as that’s often the best place to start for state tax benefits.

 However, you’re not limited to your own state’s plan—you can choose almost any state’s 529 program that fits your needs. 

Here’s how they work:

 • Contributions: Money added to a 529 plan is invested in a selection of funds or portfolios chosen by the account owner.

 • Growth: Earnings grow tax free, meaning you won’t owe federal taxes on the investment gains as long as the money is used for qualified education expenses.

 • Withdrawals: Funds can be used for tuition, fees, room and board, books, and even some K–12 tuition (in certain states) or trade schools. Let’s say you start contributing $200 monthly when your child is born. By the time they’re 18, assuming a 6 percent annual return, you could have about $75,000 saved—and all the earnings would be tax free when used for education.

Tax Benefits 

One of the biggest advantages of a 529 plan is its tax efficiency. Contributions are made with after-tax dollars, but the account’s growth and qualified withdrawals are tax free. Some states even offer tax deductions or credits for contributions, adding another layer of savings.

 For example:

 • If you contribute $5,000 to a 529 plan in a state offering a 5% tax credit, you could save $250 on your state taxes that year. While $250 may not seem like much, over time, these tax savings can make a meaningful difference—reducing your overall education costs just by choosing the right savings plan.