What’s the best way to save for college?

The cost of a college education has not just risen with inflation; it has far outpaced it. Around thirty years ago, the average four-year public college cost $6,740 per year for tuition, fees, housing and food. Adjusted for inflation, that same bill would be $14,240 today. However, the actual comparable cost is now $25,850, nearly double what general inflation alone would imply. Costs at private institutions have followed a similar trend, with the comparable annual figure now above $60,000. Moreover, as prices have increased, income growth has lagged for most families, particularly those in the lowest earnings quintile.

That gap presents a two-pronged challenge. Money set aside for college must outpace not only general inflation, but also the faster-moving higher-education inflation, and it must do so against a backdrop of household incomes that have not kept pace.

That reality has transformed college planning from a savings conversation into an investment conversation. Investing for college, however, is not the same as investing for many other large, long-term goals, and that distinction carries real consequences. A retirement portfolio, for example, is built to generate income over decades; an estate is built to pass wealth to the next generation. A college savings portfolio, by contrast, is fully liquidated on a fixed timeline. In a taxable account, that compressed timeline can force investors to realize gains, triggering a large tax bill and eroding a meaningful portion of the portfolio’s return. A 529 plan is designed to help avoid that. Earnings grow tax-deferred, withdrawals used for qualified education expenses are wholly tax-free at the federal level and many states have their own deductions or credits for contributions.

The difference between a 529 and a taxable account yields meaningful results, something explored in our “college planning essentials” module. Assuming a 6% annualized return, a $10,000 initial investment in a 529 Plan, followed by $500 monthly contributions over the next 18 years, could leave a family roughly $42,000 richer than the same strategy in a taxable brokerage account. That is the equivalent of more than three semesters of expenses at a public college. Beyond the choice of investment vehicle, timing matters, too. Assuming the same parameters above, savers who immediately begin contributing at birth end up with a portfolio roughly twice the size of those who wait until even age 6 to begin investing.

Recent legislation has strengthened the case for 529 even further. The One Big Beautiful Bill Act expanded eligible 529 expenses at the federal level to include certain vocational and credentialing programs and raised the annual K-12 withdrawal limit to $20,000. An account historically optimized for traditional college expenses is now a much more versatile education savings vehicle, whichever road a child ultimately chooses. For families uncertain about the traditional four-year college path, that flexibility is important.

Ultimately, being a good investor has always meant being a good allocator. Today, it also means being tax-conscious. Nowhere is that combination more powerful than when saving for one of the most important investments in life.

By Jack Manley - May 22, 2026

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