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Saving for Education

The cost of a college education continues to grow each year. Knowing how much you may need and where to put those savings is key.

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College tuition 101

While many families say they are saving for college, most are not saving enough. 1

How much could 4 years of college cost?

(Based on an average tuition inflation rate of 5%)

Public, In-State

Today: $85,788
In 2035: $201,783

Public, Out-of-State

Today: $135,892
In 2035: $319,634


Today: $168,896
In 2035: $397,263

Source: College Board and National Merit Scholarship Corporation, 2019. (Latest available data) 


Beyond tuition

Planning for college means saving for more than just tuition and fees. There’s also room and board, books and supplies, personal expenses and transportation.

Take the quiz

Starting early and saving just a little could potentially yield a lot.
Approximately how much might you have saved if you invest just $100 a month for 18 years?

Choose an answer from the following buttons

That's right.

Assuming a 6% annual average return, you could have $38,745 in 18 years.

More than that.

Assuming a 6% annual average return, you could have $38,745 in 18 years.

NOTE: For illustrative purposes only. This hypothetical illustration does not reflect the performance of any specific investment. Actual rates of return cannot be predicted and will fluctuate. Your results may be more or less.


Taking the first steps

Determine whether you want to fund some or all of the costs.

  • Is your goal to fund costs alone?
  • Should costs for pre-college private schooling be included?
  • Will you fund postgraduate studies?
  • Are other family members contributing to these costs?
  • Do you want your child to contribute via scholarships, work or loans?

The second step is determining if you could need access to the funds before they are needed for education expenses.

  • Can you afford to permanently set the funds aside now?
  • Should your child be able to access these funds for other purposes?
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What are your options?

Many parents start with the simpler strategies and then add others as the amount they can set aside increases or if family members wish to help.


  • Pay tuition directly to the school when your child attends.
  • Direct payment qualifies for the tuition gift tax exclusion, which may be attractive for grandparents interested in contributing.

Uniform gifts/transfers to minors accounts (UGMAs/UTMAs)

  • Establish a custodial account for each minor child.
  • By making a gift to the account, you permanently transfer the assets for his or her benefit.
  • Funds can be used for your child's education or other expenses.
  • Typically, you would serve as the custodian while your child is a minor and the assets are includible in your estate.
  • When your child reaches the age of majority, the assets become his or her property to use in any manner he or she chooses.

529 Savings Plans

  • These plans are also education accounts for a single beneficiary.
  • Funds available in the future will depend on the performance of the investments held for each account.
  • A significant benefit is that earnings on the contributed funds are income tax-free.
  • Withdrawals to cover qualified expenses (tuition, room, board and books) are income tax-free.
  • Withdrawals for other purposes may be subject to income tax and a 10% additional tax on any earnings withdrawn.
  • These plans offer flexibility in that you can change the beneficiary or even take the funds back (subject to possible tax and penalty) if they are not used by the child.

2503(C) Trusts

  • Funds are permanently transferred to these trusts with gifts.
  • Principal and interest may be distributed to the beneficiary at the trustee's discretion until the beneficiary reaches age 21.
  • Gifts to these trusts may qualify as annual exclusion gifts.
  • Trust assets may be used for education or other expenses.

Gift (Crummey) Trusts

  • This type of trust may last for any period of time, even multiple generations.
  • It gives you the flexibility of accumulating gifted assets that can be used for a broad range of purposes, including education.
  • It’s structured to allow gifts to qualify for the annual gift tax exclusion.
  • This trust is often used to receive gifts as part of a multigenerational wealth transfer plan.
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Talking about gift taxes

Education funding may have gift tax implications. Here’s what you need to know.

Tuition Exclusion

Unlimited amounts of tuition paid directly to any educational organization (pre-K and up) can be disregarded for gift and generation-skipping transfer (GST) tax purposes.

Annual Exclusion Gifts

No gift tax reporting is required for most gifts if the total you give to a single recipient per year does not exceed $16,000. Married couples may give up to $30,000 per year to each recipient.

Taxable Gift

Gifts beyond the tuition and annual exclusion amounts are taxable gifts. However, no gift tax will be due until your lifetime total taxable gifts exceed $12.06 million.

Generation-Skipping Transfer (GST) Tax

An additional tax must be considered for gifts to grandchildren or others who are two or more generations younger than the donor. Some exclusions apply and no GST tax will be due until your lifetime gifts of this type exceed $12.06 million.