If you are in your 40s or 50s, you are often funding college and catching up on retirement at the same time — so the order matters. A useful benchmark is the one-third rule: plan to pay roughly a third from savings, a third from income during the college years, and a third from financial aid and student loans. Full funding is a great outcome — but partial funding is a plan, not a failure.
Why the target keeps moving
College costs have inflated at roughly 5% a year for decades — about twice general inflation. A school costing $28,000 today costs over $50,000 a year in 12 years at that pace. That is why starting early matters more than starting big: at a 6% return, a dollar invested at birth does the work of roughly three dollars invested at age 12.
Where to save it
- 529 plans grow tax-free and withdrawals for qualified education costs are untaxed — many states add a tax deduction on contributions.
- Grandparents and relatives can contribute to the same 529; gifts up to the annual exclusion avoid gift-tax paperwork.
- Unused 529 funds can now roll into the beneficiary's Roth IRA (within limits) — reducing the “what if they don't go” risk.
- Keep retirement first: there are loans for college, but none for retirement.
A sanity check on the number
If the gap feels impossible, adjust the target before abandoning it: two years of community college plus a transfer, in-state tuition, and merit aid routinely cut the total by 40% or more. The best plan is the one you can fund every month without raiding your own future.