How Much Do You Really Need to Save for College?

Saving for college can feel overwhelming for new parents. Questions like when to start, how much to save, and where to put the money can make it hard to know where to begin. And with college costs only going up—tuition and fees at national public universities have risen about 24% adjusted for inflation for the last 20 years, according to US News data—it’s easy to feel like it’s an almost impossible task.

To help improve the odds of success, we look at how using a 529 college savings plan can reduce how much you need to save by thousands when compared with saving in a brokerage account and offer a framework for considering how much you need to save each month.

What Is a 529 Plan?

A 529 plan is a flexible, tax-efficient financial tool that can be used for qualified education expenses including tuition, room and board, books, supplies, and more. Tax considerations are the primary benefits of a 529 plan compared with a personal brokerage account. Investments in a 529 plan can increase tax-free. When you withdraw money from the plan to pay for qualified expenses, you don’t have to pay capital gains taxes. Many states also offer a state income tax benefit if you invest in your state-sponsored plan.

With a 529 plan, you contribute aftertax dollars into an account in which you can choose from a number of investment options, such as a target-date portfolio that gradually reduces risk until the first enrollment year, or you can build your own portfolio using a curated list of funds.

Case Study: How Much Will Junior’s College Education Cost?

Like most new parents, Adam had a lot on his plate. That’s why he turned to his financial advisor at Hole-in-One Capital to help figure out how much it was going to cost Junior to follow in his parents’ footsteps at the University of Cincinnati. Of course, Adam was betting on a full sports scholarship, but he knew it was wise to hedge.

His advisor started by estimating how much four years at the University of Cincinnati might cost 18 years from now. She assumed tuition would rise about 4% per year. That estimate reflects the fact that college costs have historically grown faster than general inflation, which typically runs near the Federal Reserve’s 2% target.

In 2025, one year’s tuition at the University of Cincinnati was about $14,000 for an in-state resident. At 2025 prices, four years would cost $56,000. Adding the cost of housing and food at an annual estimate of $16,000, the total cost for four years came to approximately $120,000.

With the 4% annual inflation assumption, in 18 years, tuition would grow to around $30,000 a year. So for a four-year degree, the total cost would be approximately $125,000. For housing and food, which were estimated at $16,000 annually for 2025, the advisor assumed a 2.5% inflation rate using Morningstar Investment Management’s forward-looking capital market assumptions. That added about another $100,000 to the estimated cost of four years at the University of Cincinnati, bringing the total to $225,000.

How Much Does a 529 Help?

With this savings goal in mind, Adam’s advisor suggested using a 529 plan. Adam had heard about 529 plans and knew they were a smart way to save for college. Still, he wondered if the benefits were really worth the hassle of opening yet another account.

To show the benefits, Adam’s advisor walked him through a simple example. Both a 529 plan and a taxable brokerage account were assumed to follow the same investment strategy: mirroring the average equity glide path of target-enrollment 529 portfolios. Those portfolios typically start around 85% in stocks and gradually shift to about 20% by the time a child turns 18. Because the investment mix is the same, the expected pretax returns are identical. Using Morningstar Investment Management’s capital market assumptions, the advisor estimated a 7.5% average annual return over 18 years.

With that return, Adam would need to save about $500 a month to reach his $225,000 goal when his child turns 18. Withdrawals from a 529 plan used for tuition are tax-free, so he wouldn’t owe anything on the capital gains.

A taxable brokerage account is different. Unlike a 529, Adam would owe long-term capital gains taxes, 15% based on his income and filing status, when he sold investments to pay for college. To cover those taxes and still end up with $225,000, he’d need to save about $560 a month instead of $500. That $60 monthly gap adds up: Over 18 years, it amounts to an extra $12,960.

Of course, this is a simplified illustration. It doesn’t account for factors like taxes on dividends or interest income in the taxable account, nor does it reflect potential changes in tax law, investment performance, or Adam’s financial situation over time. And while qualified withdrawals from a 529 plan are free from federal taxes, some states may treat them differently. We provide an overview of state tax benefits here. But even with those caveats, the example highlights the potential tax advantages of a 529 plan.

Understanding how 529 tax benefits can add up made Adam’s decision an easy one. With $13,000 saved, he and his wife would probably be able to afford tickets to the 20th anniversary of Taylor Swift’s Eras Tour when Junior went to college.

You can use this interactive calculator to estimate how much you could save using a 529 plan versus a taxable brokerage account.

And if Junior doesn’t end up needing the funds for college? Thanks to recent changes, 529 plans now offer even more flexibility. For example, up to $35,000 can be rolled into a Roth IRA, giving Junior a head start on retirement savings. You can read more about the increased benefits for 529 plans here.