If you want to begin saving for your children’s college but are unsure where to start, this article will analyze the different savings avenues available and help you determine which one will be most effective for your situation. With the cost of higher education continuing to rise, it is more advantageous than ever to start saving as soon as possible.

According to the National Center for Education Statistics, the average cost of attendance at an in-state public four-year institution is now approximately $28,500 per year, or more than $114,000 over four years. Out-of-state students are looking at roughly $47,000 annually, and students at private nonprofit universities can expect to pay upward of $62,000 per year. When you factor in inflation, families who wait to begin saving face a steeper and steeper hill to climb.

Now that we have established the scope of the challenge, let’s explore the different pathways to save for college. We’ll compare the 529 Plan, the Coverdell Education Savings Account (CESA), the Education Savings Bond Program, available tax credits, and finally, student loans for covering any remaining gaps.

529 Plan

The 529 Plan, formally known as the Qualified Tuition Program, remains the most popular and flexible way to save for college, and for good reason. There is no income phase-out limit, meaning anyone can contribute regardless of their income. The investment earnings inside the account grow tax-free, and withdrawals used for qualifying education expenses (tuition, room and board, books, supplies, fees, equipment for certified apprenticeship programs, etc.) are completely tax-free at the federal level.

Plans are sponsored by individual states, but you are not restricted to your home state’s plan, and your beneficiary is not restricted to schools within that state. One important consideration: certain states offer a state income tax deduction for contributions made to their own plan. If you live in a state with an income tax, it’s worth checking whether your state offers this benefit before opening an account elsewhere.

In 2026, the annual gift tax exclusion is $19,000 per individual, which means you can contribute up to that amount per beneficiary without filing a gift tax return. Married couples can combine their exclusions for $38,000 per beneficiary per year. The 529 also allows a strategy known as superfunding, front-loading five years of contributions in a single year ($95,000 per individual, $190,000 for married couples). This can be a powerful tool for grandparents or other relatives looking to make a meaningful gift.

One significant development from the SECURE 2.0 Act: beginning in 2024, unused 529 funds can be rolled over into a Roth IRA for the beneficiary, subject to certain conditions. The lifetime rollover limit is $35,000, the 529 account must have been open for at least 15 years, and is subject to annual Roth IRA limits. This provision essentially eliminates much of the overfunding risk that previously made some families hesitant to fully commit to a 529.

The 529 can also be used for up to $20,000 per year in tuition expenses for K-12 private school. And if the original beneficiary does not need all of the funds, the account beneficiary can be changed to a qualifying family member – including siblings, cousins, or even yourself – without any tax penalty.

Millennial Wealth Tip: A holistic financial planner can help you determine which state’s 529 plan is most advantageous for your situation, optimize your contribution strategy, and integrate college savings into your broader financial plan without sacrificing your own retirement goals.

A common question from clients is what happens if they overfund their 529. The answer depends on several factors: you can change the beneficiary, use funds for K-12 or graduate school expenses, roll unused funds into a Roth IRA (under SECURE 2.0 rules), or accept the 10% penalty plus ordinary income tax on earnings for non-qualifying withdrawals. This is why we typically recommend funding a 529 for approximately 80% of expected costs rather than 100%, education costs are variable, and flexibility matters.

Coverdell Education Savings Account (CESA)

The Coverdell Education Savings Account offers many of the same tax advantages as a 529,  tax-free growth and tax-free withdrawals for qualifying expenses, with a few important differences.

The most significant limitation is the income phase-out for eligibility. In 2026, single filers with a modified adjusted gross income (MAGI) above $110,000 and married filers above $220,000 are not eligible to contribute. For high-income earners this effectively rules out the CESA.

The annual contribution limit is also much lower: $2,000 per beneficiary, per year. If you have three children, your total CESA contribution across all of them is capped at $6,000. Additionally, the funds must be withdrawn by the time the beneficiary turns 30, unless the beneficiary has special needs.

On the positive side, the CESA can be used for K-12 qualifying expenses with somewhat broader flexibility than the 529, and the definition of qualifying expenses is similarly generous. For families who fall within the income limits and are supplementing a larger 529, a CESA can be a useful secondary vehicle.

Education Savings Bond Program

Series EE and Series I savings bonds can also be used to fund qualifying higher education expenses on a tax-advantaged basis. If certain conditions are met, including income limits and the bond being registered in the parent’s name, the interest earned on the bonds may be excluded from federal income tax when used for qualified education expenses.

The income phase-out in 2026 for single filers begins around $100,000 and for married filers around $150,000. Like the CESA, this vehicle is not available to most high-income earners. For families who do qualify, Series I bonds in particular have become more attractive as an inflation-protected savings tool, though they should typically be viewed as a supplementary option rather than a primary college savings vehicle.

Tax Credits

Tax credits are separate from college savings accounts; they come into play when you’re actually paying college expenses, not when you are contributing to a savings account. Understanding them is still essential to your planning, however, because they can directly reduce the amount of tax you owe.

American Opportunity Tax Credit (AOTC): The AOTC provides a credit of up to $2,500 per student per year, available for the first four years of undergraduate education, for those taking at least a half-time course load for at least one academic period during the year. Qualifying expenses include tuition, required enrollment fees, and course materials. The credit begins to phase out at $80,000 for single filers and $160,000 for joint filers in 2026, and is fully phased out at $90,000 and $180,000, respectively. Up to 40% of the credit ($1,000) is refundable, meaning you can receive it even if your tax liability is zero.

Lifetime Learning Credit: The Lifetime Learning Credit provides up to $2,000 per tax return per year and can be used for any undergraduate, graduate, or professional degree program, even individual courses to improve job skills. The phase-out thresholds are the same as the AOTC in 2026. Unlike the AOTC, this credit covers only tuition and enrollment fees, and it is not refundable. You cannot claim both credits for the same student in the same year. A common question from clients is what happens if they overfund their 529. The answer depends on several factors: you can change the beneficiary, use funds for K-12 or graduate school expenses, roll unused funds into a Roth IRA (under SECURE 2.0 rules), or accept the 10% penalty plus ordinary income tax on earnings for non-qualifying withdrawals. This is why we typically recommend funding a 529 for approximately 80% of expected costs rather than 100%, education costs are variable, and flexibility matters.

Student Loans

If savings fall short, student loans remain a reality for many families. It is important to understand the options available and approach borrowing strategically.

• Direct Subsidized Loans are available to undergraduates demonstrating financial need. The federal government covers the interest while the student is enrolled at least half-time and during the grace period. These should be the first borrowing option to explore.
• Direct Unsubsidized Loans are available to both undergraduate and graduate students regardless of financial need. Interest accrues from the moment the loan is disbursed, even during school, making them meaningfully more expensive over time.
• Parent PLUS Loans allow parents to borrow up to the total cost of attendance, minus any financial aid received. The interest rate is higher than other federal options, and repayment typically begins immediately, though deferment is available.
• Private Student Loans are offered by banks, credit unions, and other lenders. Interest rates can be variable, terms vary widely, and they offer fewer borrower protections than federal loans. They should generally be a last resort.

The Bottom Line: The 529 plan remains the most powerful and flexible college savings tool available to most families in 2026, especially in light of the new SECURE 2.0 Roth rollover provision, which has significantly reduced the risk of overfunding. Start early, contribute consistently, and integrate your college savings strategy into your broader financial plan. If you are uncertain how much to save or which options are most tax-advantageous for your state, working with a fiduciary financial planner can help you build a clear, actionable plan.