9 Great Ways To Save for College

Takeaways: Ways To Save For College

• Some college savings options include 529 plans, Coverdells, prepaid tuition plans, custodial accounts, deposit accounts, government savings bonds, Roth IRAs, brokerage accounts and "Trump Accounts."
• Some plans work well if you have a longer timeline to recover from any market dips; others work best if your child's college education is just around the corner.
• Plans may restrict use for tuition or educational purposes only, while others offer more flexibility. 
• How much you need to save depends on college costs and your funding sources.
• You might cover any costs beyond your savings with grants, loans, financial aid and gifts.

How Much Does College Cost?

On average, public four-year in-state tuition and fees for the 2024-25 academic year ranged from $6,360 in Florida to $17,490 in Vermont, according to recent research from The College Board.

In Washington, in-state tuition and fees averaged $11,850 for the 2024-25 school year.

Beyond tuition and fees, you will also need to account for housing, books, school supplies, food, a computer, transportation and other educational expenses. You might also need to account for travel home if you or your child attend school far from where you live.

In 2024-2025, these were the average costs of tuition and fees calculated by the College Board.

It's important to note that this sticker price differs from the "net price," or actual price paid by most full-time undergraduate students. Students may qualify for grants, scholarships or other aid that doesn't need to be repaid, so your out-of-pocket college costs might not be as high.

The net price has declined in the past decade, according to the Bipartisan Policy Institute. A private nonprofit four-year school might have a sticker price of $43,350, but a net cost of $16,510, the College Board said.

These costs also don't need to be paid up front or all at once. You can divide the total by semester or quarter to get an idea for how much you'll need to pay at regular intervals.

How Parents Pay for School: The College Fund and More

Parents pay for college expenses using a variety of sources, after any grants, scholarships or financial aid their child qualifies for. Some methods include:

• College savings plans
• Parental savings
• Investments
• Student savings
• Student's parental income
• Retirement account withdrawal
• Student income
• Parent or student federal loans
• Parent or student private loans
• Home equity loan or line of credit
• Parent or student credit cards

However, plans designed for college savings often offer tax benefits that aren't provided by other types of savings, and they don't rely on your home equity or retirement accounts, so you can keep investing in your own future.

Caveats: Taxes & Financial Aid

The way you save for college can impact your taxes, your child's taxes and financial aid for your child. 

If you use funds in retirement or educational accounts for non-qualifying purposes, you may pay a penalty tax (PDF) plus taxes on the money withdrawn. 

You may also owe taxes on interest or returns if you save in a non-educational savings account. Get tax advice from your tax and investment advisors on plans and withdrawal strategies.  

Various college saving plans, account types and ownership also affect your child's financial aid eligibility. Some approaches can reduce the aid your child receives. 

For example, student assets, such as checking accounts, savings accounts and certificates of deposit, have a greater impact on the Student Aid Index used to calculate federal financial aid than parent assets, and may reduce the financial aid your child qualifies for. Speak with a financial aid specialist about different strategies.

Options for College Accounts

1. The 529 College Savings Plan

A 529 plan is one of the most popular options for U.S. parents, with 35% relying on 529 plans for college funding. About $525 billion is invested in nearly 17 million accounts nationwide, according to the College Savings Plan Network (PDF).

These plans are typically sponsored by various states with tax advantages to in-state residents. You can invest in the stock market and enjoy federal tax-free growth.

When it's time to withdraw money, you can do so without paying taxes if the money is used for qualified education expenses, which could include college or trade schools. These expenses were expanded in July 2025, when the president signed an expansive tax and policy bill into law.

A 529 plan can be a good option if you have a longer timeline until your child attends a qualifying program, so money has time to grow and also recover in a volatile market.

Pros: 529 College Savings Plan

• Tax advantages: Some states offer state tax deductions or credits for contributions, if state income taxes exist. (Washington state does not have an income tax.) In all states, you can withdraw earnings tax-free if used for qualified educational expenses.
• Investment flexibility: Invest your money in various mutual funds that fit your timeline, risk tolerance and savings goals.
• Flexible: Due to the new tax and policy law, 529s are more adaptable than ever. You can use money on a wide range of recognized postsecondary credentialing programs, in addition to prior flexibility that included K-12 expenses, college tuition, Roth IRA savings or repaying student loan debt.
• High limits: Plans typically set maximum account contribution limits varying by state, but can reach as high as $596,000 per beneficiary (in New Hampshire) as of 2025.

Cons: 529 College Savings Plan

• Fees: Some 529 plan investment options charge fees, either on an annual basis or fund-related fees.
• Market risk: Investing future college funds in the stock or bond market can expose them to market risk in most cases, particularly if the stock market experiences a downturn.
• Limited use for private K-12 schools: You can only use up to $20,000 per year for elementary and secondary school tuition (starting in 2026).
• Research required: With dozens of 529 plans available in various states, you'll need to compare options carefully.

2. Coverdell Education Savings Accounts (or Education IRA)

Once known as Education IRAs, Coverdell Education Savings Accounts (also referred to as "Coverdells") are another type of tax-advantaged account. You can use the funds for most educational purposes, including private school tuition. These were among the first types of education-focused accounts created.
Coverdells, like 529s, may be best for those with a longer timeline until school begins. BECU offers Coverdell education savings accounts.

Pros: Coverdell Education Savings Accounts

• Tax-free growth and withdrawals: Similar to a 529, it allows for tax-free growth and withdrawals for qualified education expenses.
• Investment flexibility: You may have the option to invest Coverdell money in stocks, bonds, mutual funds, cash or CDs.
• Flexible use for K-12: No limits on use for private K-12 tuition or related expenses, unlike a 529 plan.

Cons: Coverdell Education Savings Accounts

Contribution limit: You can contribute just $2,000 a year per beneficiary, in all accounts. Higher income earners can't contribute due to income maximum limits.

• Age limits: The designated beneficiary must be under 18 or be designated as a beneficiary with special needs. In addition, funds must be used by the time the student is 30 years old.
• Fewer tax advantages: You can't deduct Coverdell contributions from state taxes in states that have an income tax.
• Market risk: Investing future college funds in the stock market can expose them to market risk if the stock market suffers a decline.

3. Prepaid Tuition Plans

Prepaid tuition plans are a type of 529 that lets you pre-pay all or part of the costs of a college education, so you lock in tuition costs at today's prices.

No matter how tuition rates rise in the future, the educational units you purchase today are guaranteed for the future. For this reason, prepaid plans may be best for adults with younger children.

For example, Washington's 529 program is called Guaranteed Education Tuition. It only requires $25 to open, and you can set up lump-sum or ongoing payments.

The units you buy keep pace with the highest prices of Washington's public universities. However, this amount may not cover a full year's tuition at another state's university, or even at an in-state private university. 

Pros: Prepaid Tuition Plans

• Inflation protection: Hedges against future tuition inflation, a benefit as tuition costs rise.
• In-state benefits: Ideal for students who are sure they will attend a public, in-state school.
• Market risk protection: Some states guarantee the funds, even in the event of a market crash.
• Fee inclusive: Fees are factored into the unit pricing.

Cons: Prepaid Tuition Plans

• Residency requirements: You or the beneficiary may need to prove state residency.
• Availability limits: Not all states offer these plans; enrollment and tuition purchases may be subject to limitations.
• Enrollment limits: The funding is based on the in-state rate only.
• No control over investments: You won't have an opportunity to select investments.

4. Custodial Accounts

Uniform Gifts to Minors Act and Uniform Transfers to Minors Act accounts are custodial accounts. These accounts are not specifically for college purposes, but can be used for college.

The accounts may be best if you wish to turn over account ownership to your child for college expenses.

With custodial accounts, assets are held in the child's name but managed by a custodian (such as a parent or grandparent) until the child reaches a specific age, determined by the state of residency.

BECU offers UTMA accounts.

Pros: Custodial Accounts

• Fund flexibility: Funds can be used for any purpose that benefits the child, including a car, housing or medical expenses.
• Fewer contribution limits: You can contribute any amount, though gift tax rules apply after $19,000 per year per donor in 2025.
• Investment flexibility: You or your child can invest some custodial account types in stocks, bonds and cash portfolios, just like a brokerage account. Others are savings and checking only.

Cons: Custodial Accounts

• Taxable: There are no tax deferral or tax-free withdrawals for education. You'll pay annual taxes on earnings, although young adults typically have a lower tax rate compared with older adults
• Not college-focused: At 18 or 21 (depending on the state and account type), when the child gains complete control, the child can use the money in any way, which may not be for college.

5. Savings Accounts, Money Market Accounts and CDs

Various and multiple deposit accounts can be opened and managed at any credit union or bank. Some options include standard savings accounts (for children or adults), high-yield savings accounts (BECU doesn't offer these), CDs or money market accounts.

Each offers benefits and disadvantages, as well as different interest rates.

These accounts are not intended solely for college purposes and can be used for any reason. A savings account may be best for covering fast-approaching expenses (such as next year's tuition) or unexpected expenses.

Pros: Deposit Accounts

• Simple use: Funds are readily accessible at any time for any purpose.
• No limits: No income or contribution limits beyond the institution's rules — you, your child and others can deposit as much as you like — within annual gift tax restrictions.
• Stable: No market volatility, as accounts are insured at federally insured financial institutions (FDIC insured at banks and NCUA insured at credit unions up to $250,000 per ownership category, per institution).

Cons: Deposit Accounts

• Low returns: Interest rates are typically below inflation, tuition inflation and long-term investment returns, and can fluctuate over time.
• No tax advantages: You'll owe taxes every year on any interest earned.
• Research needed: To secure the best interest rate, you'll likely need to conduct thorough research.

6. Government Savings Bonds

Series EE and Series I bonds, sold and guaranteed by the U.S. government, are designed to help with saving money.

Series I Bonds earn interest based on a fixed rate plus the inflation rate, which changes every six months. Series EE bonds have a fixed interest rate that stays the same for 20 years.

These bonds aren't college savings accounts, but they can offer some advantages for college savers who can wait a year or more to withdraw funds.

Pros: Savings Bonds

• Tax advantages: You'll pay federal income tax on earned interest, but not state or local income tax in locations that otherwise collect these taxes. Government bonds may also be exempt from federal income tax if used for higher education, if you meet specific criteria.
• Stable: Bonds are government-backed, and EE bonds offer the same rate for 20 years.
• Inflation protection: Series I Bonds help preserve purchasing power by building in inflation protection.

Cons: Savings Bonds

• Low returns: Savings bonds typically earn lower returns compared with 529 plans or mutual funds.
• Less liquid: You must hold these bonds for at least one year before cashing out, and if you cash out before five years, you lose three months of interest.
• Purchase limits: You can only buy $10,000 per year per Social Security number for each series (EE and I).

7. Roth IRAs

Roth IRAs are designed for retirement savings. However, you can withdraw your contributions (not earnings) at any time for any reason, including education, without paying taxes or penalties. Roth IRAs can be another savings option if you've already maxed out 529 contributions.

BECU offers Roth IRA accounts with CDs.

Pros: Roth IRAs

• College tuition use: You can withdraw earnings early (before age 591/2) without paying the standard 10% penalty if used for qualified expenses related to college.
• Investment flexibility: Roth IRAs offer flexible investment options, depending on the provider.
• Flexibility for future use: If not used for school, 529s remain primarily a retirement vehicle.

Cons: Roth IRAs

• Limitations: You can't contribute to a Roth IRA if you make more than the maximum income outlined by the IRS, and you're limited to $7,000 a year (in 2025) across all IRA accounts combined.
• Market risk: Investing your Roth IRA savings in stocks or other volatile products means you could lose money.
• No educational tax advantages: You'll owe income tax on any Roth IRA earnings used for higher education expenses.

8. Brokerage Account (or Taxable Account)

A brokerage account allows you to invest in various securities, including stocks, bonds, mutual funds and exchange-traded funds.

Many online do-it-yourself options are available, or you can work with a broker to choose investments. College students (or their parents) can open a brokerage account, although they're not designed for higher education expenses.

Pros: Brokerage Account

• Liquidity and no limits: There are no contribution limits, and you can withdraw your funds at any time without penalty.
• Flexibility: Use your earnings for any purpose, including but not limited to your child's college education.
• Lower tax rates: You could pay a lower tax rate than your usual income tax rate if you hold your investment for a year or longer.

Cons: Brokerage Account

• No educational tax advantages: You can't get a tax break for withdrawing money for college purposes.
• Taxable: You'll owe on any dividends or interest you earn, at some point.
• Market risk: If the market is volatile, you could lose money on your investments.

9. 'Trump Account'

On Jan. 1, 2026, one of the newest savings options available in the broader marketplace begins. "Trump Accounts," (PDF) created as part of the 2025 tax and policy law, will give newborns a one-time $1,000 government contribution.

Below is an estimate of this account. A pilot program has begun. This is a new account type, so look for more information in the future.

Pros: Trump Account

• Free money: The $1,000 received, when compounded over 18 years, could contribute to college funds.
• Diversified use: Funds can be used for education, home-buying, training or starting a business.
• Various limited contributions allowed: These include parents having the ability to contribute up to $5,000 per year to the accounts; parental employers can contribute up to $2,500 of that $5,000 limit.

Cons: Trump Account

• Age restrictions: At this point, the $1,000 funding is only available for children born after Dec. 31, 2024, and before Jan. 1, 2029. The money can't be accessed until children are 18.
• Taxable: Even qualified withdrawals are taxed as either capital gains or regular income, unlike 529s and Coverdells.
• Citizenship restrictions: To receive $1,000, children must be U.S. citizens at birth. At least one parent must provide a Social Security number that must be considered work-eligible to claim the credit.

What To Compare When Considering College Savings Options?

Compare the benefits and limitations of the plans under consideration:

• Taxes: Are there tax-free withdrawals for qualified education expenses only? Can you withdraw funds tax-free for other reasons, such as student loan repayment? Are there tax breaks or credits available?
• Investments: Which investment options are offered? What kinds of returns can you expect?
• Limits: Are there age restrictions for withdrawals or distributions? What are the annual contribution limits? Are there annual income limits for contributors?
• Contributing: How easy is it for a grandparent or other person to contribute to the plan?
• Financial aid: How does the plan or its ownership impact any eligibility for federal financial aid?

Conclusion: College Savings Options for College Expenses

You have a wide range of options available to help save for college. To supplement personal and family resources, consider these options:

• Grants: Federal, state, or local governments provide government grants, which are often need-based and do not require repayment.
• Scholarships: Scholarships help pay for college and are provided by universities, employers, individuals, nonprofits and religious and professional groups. The BECU Foundation supports several types of scholarships.
• Loans: Federal student loans and private student loans can supplement savings. As with any loan, this loan will have to be repaid with interest. BECU partners with student loan provider LendKey to offer student loans to members.
• College-level courses: Offered through programs such as "college in the high school" or Running Start, dual enrollment programs allow high school students to earn college credits.
• Employment: Work-study programs or a part-time job can help your student supplement the money needed for school.

FAQ: What Are Some Factors Affecting College Costs?

Maybe you dream of sending your child to an Ivy League school, but you don't want to be paying off a school loan 25 years from now. Could you get the same programs at a less expensive school? Understanding factors affecting college costs helps estimate your child's potential educational expenses. Greater costs require more in savings. College costs vary depending on factors like:

• College type: Private colleges and universities can cost two to four times as much as public universities, and community colleges may cost even less.
• Location: Out-of-state tuition, and room and board can increase college expenses significantly.
• Degree program: Some programs cost more than others. In addition, some professions — such as teachers, lawyers or physicians — will require more years in school.
• Financial Assistance: If your child is eligible for financial aid, federal student loans may be offered; private colleges and universities may provide extensive scholarships or other assistance.

What Should I Include When Calculating College Expenses?

Online college cost calculators can help you estimate your child's total college expenses and determine how much to save for college. College costs go beyond tuition. These expenses typically include the following:

• Tuition: The cost to take classes full-time or part-time.
• Fees: Including class or lab fees, parking fees and other fees.
• Housing: Whether living in a dorm, an off-campus apartment or with family.
• Food: Dining cards, groceries or a campus meal plan.
• Textbooks: For classes.
• Supplies: Laptops, paper, printers and other supplies.
• Travel: If your child lives close to home, travel during holiday and summer breaks can be affordable. However, if you live across the country or in another country, you're likely to encounter expensive flights during peak travel times.

Be sure to factor in cost increases and inflation when creating a college savings plan. According to the College Board, costs in 2024-2025 were 2.5% to 3.9% higher, even before adjusting for inflation.

Is a 529 Plan the Best Way to Save for College?

A 529 plan offers many advantages, according to an interview the American College of Trust and Estate Counsel conducted with Susan T. Bart. She points out that a 529 plan allows funds to grow tax-free, with no federal tax charged on funds withdrawn for qualified higher education purposes. Talk to your tax advisor to learn more about how tax payments, contributions and deductions work for the college savings plans you're considering.

Related Content