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College Savings Plans

  • You have a number of options to pay for college.
  • 529 plans and trust funds are designed to help parents and grandparents save for your child’s education.
  • Financial aid and private loans may be other options.

Retirement vs. education – balancing priorities

Saving for retirement and college at the same time can be a challenge for many families. While you want to help your child reach their full potential, most financial experts agree if funds are limited, saving for retirement should be the higher priority.

Save as early as possible

call out You shouldn't borrow for retirement, but you do have options when it comes to financing your child’s college education. end call out

The sooner you start saving for college, the more money you may have when the time comes. There are tax-advantaged accounts to help you save for your child’s education.

529 college savings plans are tax-deferred accounts sponsored by states that let individuals — including grandparents, relatives, and friends — set aside money for college expenses.

infographic - 529 college savings plan: investing 150 a month for 18 years, 55,000 could be your total

Money from a 529 plan can be used potentially tax-free for qualified higher education expenses. Those costs can include tuition, fees, books, room, board, and equipment required by the school at any accredited college, university, or vocational school in the United States and at some international universities. Computer or peripheral equipment, computer software, or Internet access and related services for a student enrolled at an eligible postsecondary school may also be included. Qualified expenses have been expanded to include up to $10,000 per year per beneficiary for tuition at an elementary or secondary public, private, or religious school, expenses for registered apprenticeship programs and qualified student loan repayments for a designated beneficiary or siblings (up to $10,000 lifetime each, not annual). Beginning in 2024, a provision passed in SECURE Act 2.0 allows a direct trustee-to-trustee rollover from a 529 plan to a ROTH IRA for the 529 plan beneficiary, subject to certain limits and requirements. State laws may vary.

Please consider the investment objectives, risk, charges and expenses carefully before investing in a 529 savings plan. The official statement, which contains this and other information, can be obtained by calling your Financial Advisor. Read it carefully before you invest.

Other college savings accounts include custodial accounts in the child’s name. Distributions from these accounts should be used for the benefit of the child but are not restricted to education expenses. However, be sure you understand the tax considerations, especially the “kiddie tax.”

Coverdell Education Savings Accounts (ESA) are tax-favored investment accounts designed to help cover qualified education expenses for elementary, secondary and post-secondary schools. Caution: annual contribution amounts are limited to $2,000 per beneficiary and contributors are subject to modified adjusted gross income (MAGI) limits.

Establish an educational trust fund

Another option is setting up an educational trust fund specifically intended for your child’s education. When you — or a grandparent or any benefactor — establish an education trust, you decide the terms of the trust, including who will control the money, how it will be used, and for whom the trust will benefit. Although trusts allow more control and flexibility for the donor, they are more complex and expensive to establish than other alternatives.

Note that it’s important for grandparents to involve parents in deciding how they may help with college savings because the method selected may impact any potential financial aid your child may receive down the road.

Consider financial aid

Financial aid eligibility is based on a variety of factors, not just on need and household income. Many families mistakenly believe they won’t qualify for financial aid. They prematurely decide not to apply for assistance. In fact, according to the College Board most full-time undergraduate students receive financial aid in the form of grants, loans, and work-study programs.1

call out Financial aid eligibility is based on a variety of factors, not just on need and household income. end call out

When your child is in high school, start thinking about applying for aid. To learn more about eligibility requirements, application deadlines, and available types of federal financial loans and aid, visit Education Finances.

For nonfederal financial aid, which generally assumes more family assets can be used for college costs, visit the College Board’s College Scholarship Service (CSS)/Financial Aid PROFILE® application. You may need additional information to qualify, including equity in your personal residence, nonqualified annuity values, and assets of siblings.

Go private

  • To bridge possible gaps between government aid and college costs, you and your child have the option of borrowing from a private lender. According to the Consumer Financial Protection Bureau (CFPB), students should borrow only what their future earnings will allow them to repay2.

Banks, credit unions, and other financial institutions provide private loans. They generally have higher fees than government loans and are more expensive. In addition, most private loans are taken out by students. This means the student is responsible for repayment.

Look to income and existing investments

You may have other investment sources to consider when paying for college that won’t require you to touch your retirement savings. Those may include stocks, bonds, securities, and mutual funds. If you do have available funds in cash and CDs, make sure those funds aren’t allocated to retirement.

Contact your Financial Advisor for help combining your investments to provide for your child’s education.

Next steps

  • Avoid derailing your retirement plans to save for your child’s college education.
  • Start saving for college when your child or grandchild is young by putting money into a 529 plan and evaluate other options.
  • Apply for financial aid even if you don’t think you’ll qualify.
  • If a grandparent wants to help finance your child’s education, evaluate alternatives carefully.

*This information is hypothetical and is provided for informational purposes only. It is not intended to represent any specific return, yield, or investment, nor is it indicative of future results. This calculation uses standard financial calculations using common mathematical principles. The results of the financial calculations are determined using the variables depicted herein and the results do not constitute a recommendation or investment advice.


Trust services available through banking and trust affiliates in addition to non-affiliated companies of Wells Fargo Advisors. Wells Fargo Advisors and its affiliates do not provide legal or tax advice.