How to Save for Your Child’s Education and Retirement Goals

Key takeaways:

• There is no single amount every family should save for a child’s education. Your target depends on the type of education you are planning for, how much you hope to contribute, how long you have to save and your other financial goals.

• A 529 plan is one way to build a college fund for kids, but families can also consider Coverdell ESAs, custodial accounts and other savings or investment accounts. Each option has different rules, tax treatment and flexibility.²,³

• Before using retirement savings for education, understand how a withdrawal could affect taxes, potential penalties and the money available for your own retirement.⁶,⁷

• Scholarships, grants, work-study and other financial aid may reduce how much a family ultimately needs to pay from savings.⁵

How much could your child’s education cost?

The amount you may need to save depends in part on the education path your child chooses. For the 2025–26 academic year, average published tuition and fees for full-time undergraduate students were:¹

These are published tuition and fee amounts, not the full cost of attendance. Housing, food, books, supplies, transportation and other expenses can add to the total. The amount a student actually pays may also be lower after grants and other aid.¹

Rather than treating one national average as your savings goal, research the types of schools your child might consider and decide how much of those expected costs you want your family savings to handle.

How does trade school cost compare with college?

There is not one standard trade school price to compare with college. Costs can vary considerably by program, school, location and length of training. When comparing options, look at the total program cost rather than annual tuition alone, including required tools, supplies and other expenses.

Financial aid is not limited to four-year colleges. Eligible career and trade schools can participate in federal aid programs, including grants, work-study and federal student loans.⁵

5 Ways to save for your child’s education

A child’s education fund can take different forms. Before choosing an account, think about how long you have to save, how much flexibility you want and whether the money should be reserved specifically for education.

1. Start early and set a realistic education savings goal

Starting earlier gives your savings more time to potentially grow through compound interest. But starting early does not mean you need to know exactly where your child will go to school or what it will cost.

Begin with a working goal based on:

• Your child’s age and years until enrollment

• The types of schools or programs you are considering

• How much of the cost you hope to contribute

• What you already have saved

• What you can reasonably contribute each month

• Your retirement and other financial goals

Update the target as your child gets older and their education plans become clearer.

2. Compare different types of education savings accounts

There are several ways to build an education fund for a child. The right account depends on how the money may be used, who should control it, your investment timeline and your tax situation.

Tax rules vary by account and individual circumstances. Talk with a tax professional about tax questions and a financial professional about how an education savings option fits within your broader financial plan.

3. Keep your retirement goals in the plan

Saving for your child’s education is one of several financial goals you may be working toward at the same time. A mortgage, everyday expenses, caring for aging parents and your own retirement can all be competing for the same dollars.

Start by deciding what role you want to play in paying for your child’s education. You may hope to pay the full cost, contribute a set amount or combine family savings with scholarships, financial aid and money your child earns. Then look at what fits within your family budget alongside retirement and other priorities.

Zagurski adds, “There is no prize for paying 100% of your child's college bill if doing it puts your own financial future at risk. College is important—but so is retirement, so is managing debt, and so is maintaining financial flexibility.”

Before increasing an education contribution, look at whether doing so would require you to reduce retirement contributions, take on more debt or put another important financial goal aside.

The same caution applies to using retirement accounts for tuition. Qualified higher education expenses can qualify for an exception to the 10% additional tax on certain early IRA distributions, but regular income taxes may still apply depending on the account and distribution.⁶

Some 401(k) plans allow hardship distributions for tuition and related education expenses. However, a hardship withdrawal permanently reduces the amount left in the plan, is generally subject to income tax on previously untaxed funds and may also be subject to an additional 10% tax unless an exception applies.⁷

If you are considering retirement funds for education, look at the effect on your retirement goals first. A financial professional and tax professional can help you understand the implications for your situation.

4. Explore scholarships, grants and financial aid

Savings may not need to cover the full cost of your child’s education. Scholarships, grants, work-study, student loans and other payment options may help reduce the amount your family needs to pay from savings.⁵

5. Involve your child in education planning

As your child gets older, bring them into age-appropriate conversations about what education costs and what your family plans to contribute. Talk about the difference between tuition and total cost, how scholarships work and what they may be responsible for paying.

Older children and teens can also take part in researching schools, comparing costs, finding scholarships and building a basic budget. These conversations are a natural extension of teaching kids about money.

Being clear about the plan before applications begin can give everyone a better idea of the financial choices involved.

Review your education savings plan as your child gets older

Your plan at age 5 does not have to look the same when your child is 15. Costs, financial aid, family income and your child’s plans can all change. Review the education savings goal periodically and adjust it when new information becomes available.

If the money is invested, pay attention to how much time remains before it will be needed. Investment risk that felt appropriate with more than a decade until college may feel different as enrollment approaches. All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

A financial professional can help you review how an education savings plan fits alongside retirement, debt and other short- and long-term goals.

Frequently asked questions (FAQs) about education savings

Can I use a 401(k) or IRA to pay for my child’s education?

Some 401(k) plans allow hardship withdrawals for education expenses, but taxes and an additional 10% tax may apply.⁷ Qualified higher education expenses can also qualify for an exception to the 10% additional tax on certain IRA withdrawals, though income taxes may still apply.⁶ Talk with a financial professional and tax professional before using retirement funds for education.

Is it too late to start a college fund for my child?

No. Starting earlier gives your money more time to grow, but families can begin saving at any stage. If college is getting closer, your plan may rely more heavily on current income, scholarships, grants, financial aid and lower-cost education options in addition to savings.

How much should a 7-year-old have in a 529 plan?

There is no standard 529 balance for a 7-year-old. Your target depends on future education costs, what you already have saved, how many years remain and what you can contribute without putting other financial goals aside.

How much does it cost to start a college fund for my child?

Minimums vary by account and provider. For 529 plans, many require an initial deposit of $250 or less, and some allow lower ongoing contributions with automatic investing.² Start with an amount that fits your budget.

Disclosures:

Registered Representatives offer securities through Mutual of Omaha Investor Services, Inc., Member FINRA/SIPC. Investment Advisor Representatives offer advisory services through Mutual of Omaha Investor Services, Inc.  Mutual of Omaha Advisors is a division of Mutual of Omaha Insurance Company, a stock insurer*.

All investing involves risk, including the possible loss of principal, and there can be no assurance that any investment strategy will be successful.

Mutual of Omaha and its representatives do not provide tax and/or legal advice, and the information provided herein is general in nature and should not be considered tax and/or legal advice.

Not all Mutual of Omaha agents are registered representatives or financial advisors.

*Mutual of Omaha Insurance Company (the Company) is a stock insurer. Policyholders of the Company are members of Mutual of Omaha Holding Company (MOHC) of Omaha, Nebraska. The Company is an indirect, wholly‑owned subsidiary of MOHC.

Sources:

1. College Board, Trends in College Pricing: Highlights, 2025, accessed August 2026. https://research.collegeboard.org/trends/college-pricing/highlights

2. U.S. Securities and Exchange Commission, Office of Investor Education and Assistance, 10 Questions to Consider Before Opening a 529 Account, Jan. 28, 2026, accessed August 2026. https://www.investor.gov/introduction-investing/general-resources/news-alerts/alerts-bulletins/investor-bulletins-10

3. Internal Revenue Service, Tax Benefits for Education: Information Center, updated June 5, 2026, accessed August 2026. https://www.irs.gov/newsroom/tax-benefits-for-education-information-center

4. Financial Industry Regulatory Authority, Ways to Invest for Children, June 30, 2026, accessed August 2026. https://www.finra.org/investors/insights/investing-children

5. Federal Student Aid, U.S. Department of Education, Steps for Students Filling Out the FAFSA Form, updated for the 2026–27 FAFSA process, accessed August 2026. https://studentaid.gov/articles/fafsa-student-steps/

6. Internal Revenue Service, Topic No. 557, Additional Tax on Early Distributions From Traditional and Roth IRAs, Dec. 4, 2025, accessed August 2026. https://www.irs.gov/taxtopics/tc557

7. Internal Revenue Service, 401(k) Plan Hardship Distributions — Consider the Consequences, Feb. 26, 2026, accessed August 2026. https://www.irs.gov/retirement-plans/401k-plan-hardship-distributions-consider-the-consequences