By: Sean Gallagher, CFP®
For many parents, figuring out how to save for college can feel overwhelming because the target keeps moving. College tuition continues to rise, financial aid rules seem to change yearly, and families are often unsure whether to prioritize retirement, college savings, or both. Add in student loans, FAFSA deadlines, scholarships, and decisions around how much to contribute, and it’s easy to feel stuck.
For higher-income families, the planning can become even more complex. You may assume you won’t qualify for financial aid, but that doesn’t mean strategic planning opportunities disappear. Decisions around investment accounts, gifting strategies, stock compensation, and taxable income can all impact how you ultimately pay for college.
The good news is that college planning becomes far more manageable when you break it into three phases:
How to save for college early
How to prepare for college expenses
How to pay for college while your child is enrolled
Whether your child is in elementary school or preparing for freshman orientation, having a plan can help reduce stress and avoid costly mistakes.
Phase 1: The Best Ways to Save for College Early
The earlier you start saving, the more flexibility you may have later. Even modest monthly contributions can grow meaningfully over time thanks to compounding returns. But choosing the right account matters just as much as how much you save.
529 Plans: The Most Tax-Efficient Way to Save for College
For many families, a 529 college savings plan remains one of the best ways to save for college because of its tax advantages.
Benefits include:
Tax-free growth
Tax-free withdrawals for qualified education expenses
Potential state tax deductions depending on your state
High contribution limits
The ability to change beneficiaries among family members
One concern many parents have is overfunding a 529 plan. If your child receives scholarships, attends a less expensive school, or chooses not to attend college, non-qualified withdrawals may trigger income taxes and a 10% penalty on earnings.
However, recent rule changes have created more flexibility. Beginning in 2024, unused 529 assets may be rolled into a Roth IRA for the beneficiary, subject to certain rules:
The account must be open for at least 15 years
Annual rollover amounts are subject to annual Roth contribution limits
The lifetime rollover maximum is currently $35,000 per beneficiary
Only applies to contributions made at least five years ago
Parents and grandparents should also think carefully about account ownership.
While FAFSA changes have made grandparent-owned 529 plans more attractive than they once were, some private schools may still use their own financial aid formulas. Families with significant assets may also want to coordinate gifting strategies with grandparents as part of their broader estate planning.
For families building generational wealth, college funding can sometimes become part of a broader legacy conversation.
Taxable Brokerage Accounts: More Flexibility for High-Income Families
A taxable brokerage account is often a less tax-efficient way to save for college, but it can provide meaningful flexibility.
These accounts may be useful for families who:
Want flexibility if their child does not attend college
Are already maxing out 529 contributions
Want access to funds for private school, graduate school, or other family goals
Have highly appreciated investments that require thoughtful tax planning before liquidation
High-income families may also want to consider how concentrated stock positions, bonuses, or large liquidity events could impact their future ability to fund education costs.
Phase 2: Preparing for College Costs
As college approaches, planning shifts from saving to decision-making.
Complete FAFSA Early
The FAFSA typically opens each year in the fall. Families should verify annual deadlines and prepare documents early.
The FAFSA uses prior-prior year income. For example, a student starting college in fall 2027 would generally use 2025 tax returns
For higher-income households, this is also a good time to carefully plan income recognition, such as business sales, large capital gains events, and Roth conversions. Major income events during FAFSA reporting years may reduce aid eligibility.
Build a Realistic College Budget
Many families underestimate total college costs. After tuition, you may need to budget for housing, meal plans, travel, books, technology, study abroad programs, and social expenses. A school with lower tuition is not always the lower-cost option.
Have the Funding Conversation Early
Before acceptance letters arrive, families should clearly define expectations.
Parents should communicate:
How much do they plan to contribute
Whether student loans will be part of the plan
Whether students should expect to contribute through summer work
Whether graduate school may also need funding later
This conversation becomes especially important for affluent families who can fully fund college but may choose not to for financial planning or values-based reasons.
Sometimes the goal isn’t simply writing the check - it’s teaching responsibility while preserving flexibility for other family goals.
Phase 3: How to Pay for College While Your Child Is Enrolled
Once your child enrolls, the focus shifts to efficiently funding expenses.
Use Savings Strategically
Coordinate 529 account withdrawals carefully and match distributions to qualified expenses in the same calendar year. Keep records for tuition, housing, books, and other required expenses.
Some families prefer paying smaller expenses from current income while allowing investments to continue compounding. This strategy can preserve long-term flexibility.
Consider Federal Student Loans Before Private Loans
If borrowing becomes necessary, federal student loans are often a better starting point.
These loans are generally issued in the student’s name rather than the parent’s name, which may offer:
Lower repayment burdens on parents
Income-driven repayment flexibility
Potential forgiveness opportunities depending on career path
Greater balance sheet flexibility for parents nearing retirement
Parents should be especially cautious with Parent PLUS loans, which shift repayment responsibility directly to them.
Don’t Let College Planning Disrupt Your Bigger Financial Goals
One of the biggest mistakes parents make is treating college as the only financial goal that matters.
College funding should be balanced alongside:
Retirement planning
Tax planning
Estate planning
Supporting multiple children
Charitable giving goals
Business succession planning
That doesn’t mean parents shouldn’t help - it simply means the strategy should fit within your broader financial life.
The best college planning strategies start early, evolve as your child gets closer to enrollment, and remain flexible once tuition bills begin. Whether you’re figuring out how to save for college, navigating FAFSA deadlines, or deciding how to pay for college without sacrificing retirement, thoughtful planning can create far more options for your family. For higher-income families, the biggest opportunities often come from coordinating college decisions with your broader tax, investment, and legacy planning strategy.
Sean Gallagher is a CERTIFIED FINANCIAL PLANNER™ and Wealth Advisor at HIGHLAND Financial Advisors, a Fee-Only financial planning firm that offers comprehensive financial planning, retirement planning, and investment management. Sean works directly with clients, advising them on their financial planning and investments to help achieve their goals. Sean graduated from Virginia Tech’s financial planning program, successfully passed the CFP® national exam in 2019, and has been with the firm ever since. He is also a member of NAPFA, a professional organization dedicated to serving fee-only advisors.
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The above article was written with the assistance of artificial intelligence (AI).