According to U.S. News Data, average tuition and fees for college range from $10,116 for public in-state universities to $22,577 for public out -of -state universities to $36,801 for private colleges.  Many charge more than $50,000 per year!  If you add room and board to the price tag, the average cost for 2019-2020 was $21,950 for one year as an in-state student at a state school and $49,870 for a private college, according to College Board. To make matters worse, these numbers are only going to go up.  If we assume tuition goes up by 5% per year, which over the past 10 years, is how much it has increased annually, that means that in five years, a four-year college degree could cost $112,058 at a state school and $254,593 at a private school. If you currently have an elementary school child, his or her college costs will be even higher: around $143,018 at a state school or $324,932 at a private college. And if you currently have a toddler, you could be paying $182,528 for a state school or $414,704 for a private college.  So, the obvious question is “What can you do to help pay for these mounting costs?”

Start Saving Early

The sooner you start saving for college, the better off you’ll be as the earnings will compound over time.  You can even start saving before the baby is born!  Say your child was born today, and you started saving $250 a month.  By the time your child enrolls in college, you will have saved $80,000.  Not everyone can save that much per month, and that is okay.  Do what you can because every little bit helps.  

There are a couple of rules of thumb you can follow.  Save enough to where the student loan debt will be less than their projected annual starting salary.  This will position them to be able to repay their student loans in 10 years or less.  To see if you are on track to reaching your savings goal, you can multiply your child’s age by $3,000 for an in state 4 – year public college or $5,000 for an out of state 4-year public college.  This formula represents you having saved one third of the future college costs.  

Make it as easy on yourself as possible; set up automatic deposits into your savings vehicle.  Many savings tools like 529s allow you to make automatic contributions for as low as $25 per month.  Much like retirement savings, set a goal for yourself to increase these contributions every year. 

What Type of Account Should I Use?

There are many ways to cook an egg.  In other words, you have options.  Two of the most popular options are 529 plans and ROTH IRAs.  

529 Plans

These are savings plans, usually sponsored by state governments, with the goal of saving for future education costs.  They provide favorable tax treatment by contributions being made with after-tax dollars and earnings accumulating on a tax-deferred basis.  They are also tax -free if used to pay for qualified higher education expenses.  Many states offer a state income tax deduction or tax credit based on contributions to the state’s 529 plan.  If the plan is owned by a dependent student or their parent, it is reported as a parent asset on the Free Application for Federal Student AID (FAFSA) and distributions are not counted toward your income.  Income counts against you more than assets do on the FAFSA.  Parent’s assets are assessed on a scale with a top bracket being 5.64%.  Student assets reduce aid eligibility by 20% of the asset value.  


Most people think of ROTH IRAs as retirement vehicles, but their favorable tax treatment and flexibility make them strong contenders for families trying to save for college.  ROTH IRAs allow you to withdraw your original contributions or account earnings without a tax penalty.  New contributions to the plan continue to grow, even if you’re using it for college. You’ll pay no tax on earnings if you’re making qualified withdrawals from your account. Since there are no required minimum distributions for a Roth IRA, you could continue growing your savings with new contributions as long as you have earned income to report on your taxes.  Keep in mind though, money you withdraw from a ROTH IRA does count as income on the FAFSA, which will have an impact on financial aid eligibility.  

Some people opt to use their 529 savings in the first two years of college, and then use ROTH withdrawals in the last two years of college.  They do this because FAFSA uses tax returns from two years prior to determine financial aid.  Because of this, the additional income would not affect the financial aid.   

How Much Can I Contribute Per Year?

For a ROTH IRA in 2021, you can contribute up to $6,000 a year if you’re under 50 ($7,000 for people 50 and over). Anyone can contribute to a Roth IRA as long as they have earned income for the year that falls below the income limit.

Unlike retirement accounts, the IRS does not impose annual contribution limits on 529 plans. Limits are based on aggregate contributions and controlled by states. Some states do impose an annual limit on contributions, so it is important to check your state.  Any limits are only applied by the plan you are investing in. If that is an out-of-state plan, your state of residence has no bearing on your 529 plan contribution limits.  Any money or property, including 529 plan contributions, that you give to someone will be considered a gift by the IRS. There is an annual gift tax exclusion of $15,000 per recipient, but if you go beyond $15,000, it will count toward your lifetime gift tax exclusion of $11.58 million.  With 529s you also have the option of utilizing the 5-year election, which allows you to contribute up to $75,000 to an individual’s 529 plan in a single year while spreading it out over 5 years. Keep in mind that each year must be reported on IRS Form 709.  Under federal law, 529 plan balances cannot exceed the expected cost of the beneficiary’s qualified higher education expenses.  

What Else Can I Do?

Every October 1st, parents and students can begin the process of completing the FAFSA.  By doing so, these students are considered for state and institutional scholarships and grants.  In 2019-2020, college students received $7,626 in scholarships and grants that covered up to 25% of the total cost of college, according to a study done by Sallie Mae.  There are also local scholarships available to students.  Visit the Federal Student Aid website and use the online resources available to help in your search efforts. 

Remember, it is less expensive to save for college than to borrow.  

Sources: Smart Asset/Forbes/Motley Fool/U.S. News/ 

© Geier Asset Management, Inc. January 2021. Gregory Palacorolla, CFP ® is Director of Wealth Management for Geier Asset Management, Inc., a Registered Investment Advisor. The articles & opinions expressed in this material were gathered from a variety of sources, but are reviewed by Geier Asset Management, Inc. prior to its dissemination. All sources are believed to be reliable but do not constitute specific investment advice. The views expressed are those of the firm as of January 2021 and are subject to change. These opinions are not intended to be a forecast of future events, a guarantee of results, or investment advice. Any advice given is general in nature and investors must consider their own individual circumstances. In all cases, please contact your investment professional before making any investment choices. Geier Asset Management, Inc. is not responsible for any damages or losses arising from any use of this information. Past performance is no guarantee of future results.