Step 5: Save for Your Children’s College Fund

Prerequisites:

At this point you should be debt-free (except for house payments), have a fully funded 3 – 6 month emergency fund, and are regularly contributing 15% in retirement.

If you’ve completed the prerequisites for this step, you can proceed to Step 5.

Dave Ramsey’s 7 Baby Steps Plan

As you may have guessed, Step 5: Save for Your Children’s College Fund only applies to parents or expecting parents. If you are not a parent or expecting parent, this step does not apply to you, so you may skip this step and move to Step 6: Pay Off Your Home Early.

In this step, Dave recommended you start saving for your children’s college fund by contributing to a selection of two different college savings plans.

  • 529 Plan

    A tax-advantaged savings plan designed to encourage saving for expected future educational costs. There are no yearly limits to how much you can contribute, but there is an overall cap to how much you can fund the account in total.

    The 529 Plan total cap ranges by state which can have a limit ranging from $235,000 to over $500,000.

    Contributions made to a 529 Plan will grow tax-free.
  • ESA (Education Savings Account)

    A age-limited tax-advantaged savings plan designed to save for future educational costs for beneficiaries 18 year old or younger. Funds in the ESA must also be used by the beneficiary by age 30.

    There are income eligibility restrictions.

Single filer with modified adjusted gross income less than $95,000 (partial contribution between $95,000 and $110,000)

Married filing jointly with modified adjusted gross income less than $190,000 (partial contribution between $190,000 and $220,000)

Wells Fargo on Education Savings Funds (ESAs)


An ESA permits up to $2,000 (after-tax) in yearly contributions, per student. So, any contributions made would grow tax-free.

How Much Money Do You Need to Save?

Find out how much money you need to save for your child’s college fund by using the college savings calculator linked below:

https://www.anthonyoneal.com/college-savings-calculator

What’s Next?

If you’re a parent or expecting parent and have started contributing to your children’s college fund, great! You are currently in the process of eliminating any future education-related financial burdens for you and your children.

When the educational bills come around, it’ll be one less thing for you and them to worry about, and they can focus on getting the best education they can.

If you’ve completed this step, you can now move onto Step 6: Pay Off Your Home Early.