With college tuition on the rise, many are left wondering how they’ll pay for it all without incurring significant debt. Starting the discussion about education planning early is key to creating a long-term plan that works for your specific needs and goals.

While many think the most common way students pay for college is loans, the majority use a combination of resources. The average in-state student attending a public four-year institution and living on-campus spends $27,146 for one academic year. While the average private, nonprofit university student spends $58,628 per academic year living on campus, $38,421 of it on tuition and fees.

Starting the Conversation

Education planning includes several layers—it’s more than simply putting aside money to build a college fund. Consider the following:

• What school will the student attend?
• Will it be in-state or out-of-state?
• What will they major in and how long will it take to earn their degree?
• Will they live on-campus or commute?
• Will they be eligible for financial aid, student loans or scholarships?
• How will cost of living increases factor into the costs?

While plans—and declared majors—can change, it’s important to take the initial steps early so you’re not overwhelmed. With proactive planning, there is also the potential growth of any investments over time. Along with growing your portfolio, other popular options include certificates of deposit (CD), savings accounts or money market accounts.

Other tax-advantaged savings options to consider include 529 Plans, Uniform Transfer to Minors Act accounts and Coverdell Education Savings Accounts as discussed below. As always, it’s highly encouraged that you discuss any potential options with your trusted and professional tax and/or financial advisors before moving forward.

529 Plans

As a tax-advantaged education savings vehicle, 529 plans are one of the most popular ways to save for education today. A 529 is an individual investment account, similar to a 401(k) plan, where you contribute money for college or K-12 tuition. To open an account, you fill out an application, choose a beneficiary and select one or more of the plan's investment options. Then you decide when, and how much, to contribute.

529 savings plans offer a unique combination of features that no other education savings vehicle can match. However, before investing in a plan, carefully consider the investment objectives, risks, charges and expenses carefully. A financial advisor can help you determine if a 529 plan is right for you.

Uniform Transfer to Minors Act (UTMA)

While 529 plans are a popular choice for saving toward college, they’re limited to qualified education expenses. But what if you’re not sure your child will attend college—or you want more flexibility in how the funds can be used?

A UTMA (Uniform Transfers to Minors Act) account offers a versatile alternative. It allows a parent or custodian to manage assets on behalf of a minor until they reach the age of majority (typically 18 or 21, depending on the state). At that point, the child gains full control of the account.

Unlike 529 plans, UTMAs don’t offer tax-free growth for education expenses. However, they do allow you to save and invest for a wide range of future needs—college tuition, a first car, a down payment on a home or even seed money for a business. This flexibility makes UTMAs a great option if you want to support your child’s future, regardless of the path they choose.

That said, there’s a trade-off: once your child reaches the age of majority, they can use the funds however they wish. If you’re concerned about their financial maturity at that age, a UTMA may not be the best fit.

Coverdell ESA

A Coverdell Education Savings Account (ESA) is another tax-advantaged way to save for education. Like a 529 plan, it allows for tax-free growth and withdrawals when used for qualified education expenses. One unique benefit of a Coverdell ESA is its broader range of eligible expenses, including K–12 tuition, tutoring and even educational technology—making it a flexible option for early education planning.

However, Coverdell ESAs come with notable limitations: annual contributions are capped at $2,000 per beneficiary, and income limits may disqualify higher-earning families from contributing. Because of these restrictions, Coverdell ESAs may be best suited for modest savers or those with specific K–12 education goals.

For most families, though, the higher contribution limits, lack of income restrictions and state tax benefits of a 529 plan make it the more powerful and scalable tool for long-term education planning.

Start a savings program early

No matter which route you choose, it’s important to begin saving for educational expenses early. However, you may find the most difficult time to start is when your child is young. New parents face many financial strains that always seem to take over—the possible loss of one income, newly added child-related spending, the competing need to save for a house, your retirement or a car, and the demands of your own student loans. Yet this is the time when you should start saving.

When your child is young, you have time on your side. You can evaluate your options, and you will benefit from compounding. With regular investments spread over many years, you may be surprised at how much you may be able to accumulate for your child's college costs.

Don't feel bad if you can't put aside hundreds of dollars every month right from the start. Start with a small amount, say $25 or $50 a month, and add to it whenever you can. You'll have a head start and can feel good knowing you're doing the best you can.

The professionals at Busey Wealth Management are here to help as you map out your financial future. To learn more about our comprehensive services, visit busey.com/wealth-management.

This is not intended to provide legal, tax or accounting advice. Any statement contained in this communication concerning U.S. tax matters is not intended or written to be used, and cannot be used, for the purpose of avoiding penalties imposed on the relevant taxpayer. Clients should obtain their own independent tax advice based on their particular circumstances.

This material is provided for educational purposes only and should not be construed as investment advice or an offer or solicitation to buy or sell securities.

This presentation is for general information purposes only. It does not take into account the particular investment objectives, restrictions, tax and financial situation or other needs of any specific client.