Estimating 529 Plan Contributions
If you’re not currently saving in a 529 plan, but want to help someone save for their college expenses then you should look into it. A 529 plan is a tax friendly way to save for college.
Depending on your state you might be able to get a state tax deduction or credit for contributions to a 529 plan. If the money that is invested in the plan is used for qualifying expenses the earnings are not taxed.
The big question with saving in a 529 plan is how much should you save? Like most investing it depends on your goal. How much do you want to help? Are planning on paying for private university or state tuition? Do you want to cover the costs of undergraduate degree, or graduate education as well?
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Once you have some of these question answered you can use a calculator to help estimate how much to save in a 529 plan.
In one example we assumed paying 100% of undergraduate costs for in-state tuition for a child that was born this year. In this scenario you would want to save $390 a month to cover the annual cost of college estimated to be $21,370.
If you wanted to pay for a private university the cost could be up to four times the amount in the example above.
I hope to help my children pay for some of their college expenses as I know what it looks like to borrow student loans. The current cost of college is a lot to take on for any young person, but with student loans those cost will continue to affect their lives as they get older.
Do you plan to help your children pay for college? How are your saving for them? Please comment below the original post, sign up to receive future posts by email and share with your friends!
