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Got Kids? What to Know About Saving and Retirement

Wondering what is a UTMA account or thinking of creating a 529 college savings plan? Before you begin, figure out retirement planning and emergency funds.

May 27, 2022

If you have a young family, you may be wondering how much to save for your kids’ college and when to start. Millennial parents, in particular, feel strongly about paying for kids’ college, in part because of the fresh pain of student debt. They also start saving younger by the time kids are 5, according to data from

But, savings for your children’s education shouldn’t be at the expense of your retirement or savings goals. Here’s what to consider about college savings plans as you balance different savings goals.  

Start with your savings

Consider tackling your finances first before you open something like a Coverdell education savings account. 

Emergency fund

No matter how tempting it is to start saving for kids’ college, establishing an emergency fund first is important. Everyone needs a cushion for a surprise medical bill or expensive car or home repair. You know the saying: put on your oxygen mask first.  

Financial experts commonly recommend saving three to six months’ worth of expenses. However, each family has different expenses, job stability and abilities to handle unexpected expenses with discretionary income. 

A plan for paying down high-interest debt 

Next, analyze your consumer debt. Credit card interest rates, ranging from 13 to 21% or more, add up fast if you’re carrying a balance month to month. 

As you create your savings goals, make a concrete plan to pay off high-interest cards. Student loans are tempting to pay down quickly but check the interest rate. It might make more sense to save for other goals simultaneously and not direct extra money toward student debt. 

Major savings goals

Once you’ve got those saving and paying-down-debt plans established, you can think about how to balance retirement with saving for college. That oxygen mask, remember? 

No one is offering loans for retirement, so before plunking money into an education account, make sure you’re taking advantage of an employer-sponsored 401K plan or some other type of retirement plan. Okay, now you can start thinking about your kids. 

Saving for college with education savings accounts

Compound interest is your friend, and investing in tax-advantaged education accounts, such as a 529 college savings plan or Coverdell, keeps up with college inflation more effectively than a simple savings account. 

Use a college cost calculator to get an idea of future costs. College experts suggest:

If you’re loan averse, keep in mind you can help pay off the loans if you’re able — but borrowing a certain amount can buy flexibility. 

Start saving early with whatever feels comfortable — even if that means just $25 per month. If you need to stop for an unforeseen expense, the account will still grow in the interim. For financial aid formulas, saving in your name is more advantageous than putting accounts in kids’ names. 

You have various options when it comes to where to save for your child’s future. Below we’ll cover:

  • What is a 529 plan? 

  • What is a Coverdell education savings account?

  • Coverdell vs. 529 

  • What is a UTMA account?

  • The difference between UTMA and UGMA

What is a 529 plan?

Nearly every state has a state-sponsored 529 plan for qualified education expenses at eligible institutions. One of the benefits of a 529 plan is that it offers tax advantages as savings incentives. You can use any state’s plan, but investigate your state’s plan first for any tax benefits. If it’s not beneficial, compare plans and fee structures from other states. publishes an annual fee study that’s worth examining. 

Although 529 savings must be spent on specific expenses (or incur a 10% penalty), these plans are pretty flexible. They can be used for:

  • Accredited 2 and 4-year colleges 

  • Eligible trade, career and apprenticeship programs 

  • Graduate school

  • Up to $10,000 in student loans

  • K-12 private school 

Funds can be transferred to another beneficiary if a child doesn’t attend a post-high school institution. These plans also have no annual limit, though contributions over $15,000 ($30,000 per couple) would be subject to the gift tax. The plans are held in the parent’s name, which is beneficial for college financial aid forms when you get there. 

What is a Coverdell education savings account?

Like a 529 plan, a Coverdell education savings account is an account for qualified expenses. If you’re considering a Coverdell vs. a 529, understand that you can only contribute $2,000 per year with a Coverdell education savings account, which may not be enough. But, it could work well in conjunction with another savings account. Make sure the account is in your name, not your child’s.  

What is a UTMA account?

Unlike a 529 college savings plan or Coverdell education savings account, the Uniform Transfer to Minors Account (UTMA) or Uniform Gift to Minors Account (UGMA) are a child’s asset.

If you’re considering a UTMA vs. a UGMA, the two are similar types of accounts, except the UTMA allows minors to own different kinds of property, including real estate. Managed by a custodian, the money transfers to the child at the age of trust termination, often 18. 

But be aware, child assets are treated less favorably than parent assets on financial aid forms, with 20% allocated toward college. Parents, by comparison, are expected to contribute up to 5.64% of savings. On the upside, there are no limitations on how the money can be spent. 

One way to jumpstart college savings is to have family members contribute financial gifts to your child in lieu of toys or other gifts. Many parents prefer to mitigate the “stuff” factor and need help with educational goals but don’t know how to ask. The Gift of College is one way family members can help, or you might simply suggest a small contribution to your education account.

Are you trying to juggle paying off credit card debt with funding your child’s future? You don’t have to do it on your own. Consider Tally†, a credit card debt repayment tool that offers a lower-interest line of credit, helping you pay off debt faster to start saving for college sooner.  

​​†To get the benefits of a Tally line of credit, you must qualify for and accept a Tally line of credit. The APR (which is the same as your interest rate) will be between 7.90% and 29.99% per year and will be based on your credit history. The APR will vary with the market based on the Prime Rate. Annual fees range from $0 - $300.