MW Brace yourself: This is exactly how much you should have saved for your kid's college by the time they're 5, 13 and 18

By Venessa Wong

Parents should have six figures saved by the time their kids are 18 - but don't panic yet. Here are some ways to get there.

American families face ongoing college-affordability and student-debt crises as new technologies like artificial intelligence transform the workplace, casting doubt on the value of higher education in the future.

Despite these challenges, financial planners say it remains wise for parents to prepare for the rising costs of education by saving - a lot - for college, and talking to their children about their options.

If your newborn today plans to attend college, you should plan to save roughly $105,000 in a college fund by the time they turn 18, which would cover nearly 50% of their total college expenses - tuition, fees, housing and food - at a four-year, in-state university. That's the latest advice for parents from T. Rowe Price $(TROW)$, an investment firm that offers college-savings plans.

In order to achieve this staggering figure, parents today could invest $280 each month per child from the time they are born into a 529 college-savings account that earns 6% annually, which could grow to nearly $105,000 by the time they turn 18. That amount is approximately 1.75 times the $59,972 estimated annual cost of college by that time. To fully cover 50%, parents would continue saving through the four years their child is enrolled in school.

The analysis assumes the other half would be covered by student loans, scholarships and grants. Almost 30% of undergraduates receive federal student loans.

Setting aside $280 per month for two children would add up to $6,720 per year. For a family of four making the average gross income of about $146,000, according to the Bureau of Labor Statistics, that would translate to 4.6% of gross income.

"That's achievable. They just have to control their spending," Mark Kantrowitz, author of "How to Appeal for More College Financial Aid," told MarketWatch. Reaching this savings goal might require sacrificing wants, like vacations, but "vacation is a luxury, not a necessity, so that should be the lowest priority," he said.

T. Rowe Price's guidelines suggest that by the time a child is 18, parents should have saved 1.75 times the current cost of one year of college. Over time, this means having 0.6 times the annual cost by age 5, when many children start elementary school; 1.1 times by age 10, as they prepare to enter middle school; and 1.35 times by age 13, before they begin high school.

Average annual expenses at four-year, in-state universities totaled $24,920 this year, and at private universities the average was $58,600. These benchmarks factor in average 5% annual college inflation, which would push up the mean annual cost of attending an in-state school to $59,972 in 18 years. Young said parents can monitor their progress each year using actual sticker prices at the time, as the $59,972 figure is just an estimate.

'Time will either be your friend or your enemy, so make it your friend.'David Mendels, principal of DBM Planning

For most parents, these are daunting figures. The median retirement savings, a more common savings goal, for a couple with children is just over $95,000, according to 2022 data from the Federal Reserve. But it is in parents' interest to come up with a plan for dealing with college costs, Larry Pon, a financial planner and accountant in California, told MarketWatch. Too many parents, determined to send their kids to their "dream school," say they will "figure it out," he said - and "usually what 'figure it out' means is taking on student loans."

Related: Is going to college worth it? Ask these 5 questions to make sure it's a good investment for you.

College is an important financial goal, but not the top one

As they begin planning to save for college, parents must first establish where college expenses fit into family financial goals. In terms of priorities, an emergency fund comes first, Roger Young, a financial planner at T. Rowe Price, told MarketWatch. The next biggest priorities should be paying off high-interest debt and saving for retirement - which at the very least means maximizing an employer match, but preferably means saving at least 15% of income, which Young describes as "adequate" for retirement.

The planners MarketWatch spoke with all agreed that retirement savings were a higher priority than college savings. Unlike education, there is no loan product for retirement, they noted. After those more urgent goals are accounted for, parents can start saving for their children's education, and also should talk to their children about the plan.

Parents who are not able to save $280 per month per child, as T. Rowe Price suggests, can establish different goals. Another framework is to aim to fund one-third of college costs from savings (rather than 50%), one-third from parent income while attending, and one-third from student loans or scholarships, said Kevin Brady, a financial planner at Wealthspire in New York. "Those ratios can be adjusted as needed depending on total cost, age, income, number of kids and so on," he said.

The rule of thumb is not to borrow more than you think your annual starting salary will be.

Eventually, when children are old enough to work, they can also contribute to this $280 monthly target. "I help clients reframe college savings as a shared responsibility: The family may cover part, and the student contributes through work, scholarships or modest loans," said Nathan Sebesta, a financial planner at Access Wealth Strategies in New Mexico.

Being realistic about a college budget might also mean thinking through the financial impacts of different options. Dave Ragen, who has three children and is a financial planner at Grunden Financial Advisory in Texas, said he was putting away about $350 total per month for college, which at times felt like "a stretch." He had originally aimed to save $20,000 to $30,000 for each of his children to attend community college and then a local university. When his son said he wanted to attend a school out of state, however, "we started crunching the numbers, and there was a big difference from what the college cost actually was compared to what we had been talking about and planning with him."

Ragen tried to bump up the savings rate into their 529 college-savings account, but ultimately sat down with his son and "ruled it out" based on the amount of debt he would likely have to take on to go out of state. The rule of thumb is not to borrow more than you think your annual starting salary will be. His son ultimately stayed in-state, got scholarships and contributed money from his summer jobs.

For the typical American family, however, setting aside money for education is a stretch, especially with prices expected to rise due to changing U.S. tariff policy. "For many families, fully funding college just isn't realistic," said Liz Gillette, a financial planner at Curio Wealth in Maryland, who says the topic comes up often with clients in their 30s and 40s. "I suggest having honest, age-appropriate conversations with your child early - about what types of programs make sense and how much the family can realistically contribute."

Only 17.2 million families in the U.S., or roughly 15% of family households, use 529s.

As it is, American parents are already less likely to have enough emergency savings to cover three months of expenses (49%) than adults in the U.S. overall (57%), according to 2024 data from the Federal Reserve. They are also more likely to have credit-card debt and higher credit-card balances than average, according to a 2023 PYMNTS survey.

Read more: Parents are 'hunkering down financially' to brace for Trump tariff impact

"I've seen people who are very successful savers, saving at high percentages even though they don't have a ton of income," Young said. Still, "we need to give ourselves some grace."

Is a 529 plan worth it?

To incentivize parents to save for college, Congress created 529 plans in the 1990s, offering tax-free earnings on investments used for higher education. (Many states also offer tax deductions on 529 contributions.) Sen. Mitch McConnell of Kentucky, the former Republican majority leader, and former Sen. Bob Graham, a Florida Democrat, led the effort to secure federal tax advantages. Starting in 2024, up to $35,000 left in 529 accounts also became eligible to be rolled over into Roth IRAs, giving parents more flexibility - and incentive - to save.

For the 61% of high-school grads who go to college, "the tax benefits are meaningful," Young said of 529s. Earnings in regular savings accounts are taxed as ordinary income, and growth in taxable brokerage accounts are taxed as capital gains.

Yet only 17.2 million families in the U.S., or roughly 15% of family households, use 529s, according to data from the research firm ISS Market Intelligence that was shared with MarketWatch. (One contributing factor is that about half of U.S. adults do not know what 529s are, a separate survey by Edward Jones found.)

While high-income Americans have the greatest ability to take advantage of 529 benefits, ISS Market Intelligence data show others are also trying. The majority of households that have 529s - about 74% - earn less than $150,000 per year, roughly the threshold for the highest 20% of income earners in the U.S.

The estimated median 529 account balance is $9,500, according to ISS, and among families that auto-deposit, the average contribution is about $200 per month.

The sooner you start, the more your student stands to benefit

"The most important point for anyone thinking about saving for college is to start now," said David Mendels, principal of DBM Planning in New York. "Time will either be your friend or your enemy, so make it your friend."

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