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How much should you save for your child's college education? It is one of the biggest questions we are asked almost every day. How much should we have in a 529 plan? How much should we save for college? How much should we worry about this? And the answer is difficult – it depends.
The idea of a 529 college savings plan is great: You can put money into an account and it will grow tax-free to one day fund your child's education. And you can also donate a lot of money (up to $300,000 in most states). That's not where the problem arises.
The real problem lies in rising tuition costs and the amount that every “college savings calculator” says you need to save for your child’s education. According to the College Board, the average cost of a public four-year college was $10,740 in in-state tuition in 2020-2021. The average cost of a private college was $38,070.
If you start plugging these numbers into the college savings calculator, you should suddenly be saving over $500 per month for your child. Then add that to your own retirement savings and you will have nothing left for yourself each month!
So let's dive in and see how much you should have in a 529 plan.
Follow the process for saving for college
This single amount gives me a shock every month when I think about saving for my child's college education. But it's also an important reminder of why everyone should follow the “How to Save for Your Child's College” guide.
The key phrase is YES:
(Y)YOU: You need to make sure your own finances are in order before attempting to save for your child's college. If you can't pay rent or buy groceries, there are bigger problems to address first. However, the YOU area also includes saving for your own retirement and securing an emergency fund. I've said this hundreds of times: You can't get a loan for retirement. Make sure you save for yourself first.
(E) Education Savings Accounts: Once you've saved for yourself, the next thing you can do is save for your child in education savings accounts like the 529 plan.
(S) Savings: After you've contributed a certain amount to a 529 plan or other education savings account, it makes sense to also save in a traditional savings account if you want to help your child with other expenses that aren't considered education expenses.
How Much You Really Need to Save in a 529 Plan
Part 2 of this “scary” number is what you need to save for your child’s college each month This number is based on saving 100% of their tuition costs. As a parent, you do not have to pay 100% of the school fees. Or maybe you pay 100% of local public tuition and the rest is up to you. Or maybe you just have a target savings number and the rest is up to you.
It's just important to remember that you don't have to save and pay for your entire college education. It is YOUR university – not yours. Plus, there are countless ways for them to find help paying for school, from finding scholarships to getting a student loan.
Here's our guide to paying for college.
So instead of worrying about saving $500 a month, I make the following assumptions and save based on that:
- I will be saving for a state college that currently costs $10,200 per year
- I will contribute to all four years of study
- I will cover 50% of the expected study costs
- When my child turns 18, I'll be done contributing to the 529 plan (sorry, but you're out of the house now!)
- I expect college costs to continue to rise at a rate of 4% per year
- I expect a 6% annual return on my investments in my 529 plan
With these assumptions, you should save about $96 per month for your child's college, or $1,151 per year. Let's see how this breaks down.
However, if you are in the higher end and want to fund 100% of your child's education costs at a 4-year private college, I have also included that in the table below (for reference, this means you will contribute $630 per month).
If you want better estimates, check out our 529 plan guide by state, find your state, and find out what the cost of college is in your state.
How much should you have in your 529 at different ages?
Fidelity also has a great free calculator to help you determine how much you need specifically for your situation. They are based on many of the assumptions above and agree that you do not need to save 100% of your child's college costs. Check out the college savings calculator here.
You may also find this guide to 529 plan contribution limits helpful.
529 College Savings Plan Guidelines
From the results, we can conclude that the goal of most people saving for college should be to save between $37,328 and $245,427 in the account. This is undoubtedly a huge range. But remember what “low-end” and “high-end” mean.
The lower amount is intended for someone who wants to help their child pay for a 4-year public school. The maximum amount applies to someone who wants to fully pay for their child's four-year private education.
Parents should also keep in mind that even when saving for a private school, many students who attend private schools receive reduced tuition or scholarships to offset the “real” tuition costs. Even this high-end amount may not make sense when saving for college.
In this scenario, the lower-end 529 plan can pay out between $9,600 and $10,000 per year for each of the four school years. Assuming college costs will rise, that could be about 50% of the cost of tuition for a 4-year public school in 18 years.
Where to Open a 529 Plan
What many people don't know is that you can invest in almost any government 529 plan. For some people, it may make sense to use your own state's plan to take advantage of the tax break – but not all states offer tax breaks on contributions (especially California).
If government doesn't play a role, the next thing to look at is performance and ease of saving. When it comes to performance, you want good performance at low fees. To make saving easier, we are checking whether the plan can be linked to savings programs such as Backer.
Check out this guide here, find your state and see which plan we recommend: 529 plan guide.
SavingForCollege.com ranks the best plans every year. Which plan you choose depends on the state in which you are located. Check out the map below and find your state:
Recommendations for saving for college
Even saving just $100 per month can be a daunting task. I know it's for me. However, when it comes to saving for college, here are some simple tricks that can help:
1. Save all of your child's birthday and vacation money. In many families, children receive money from their grandparents, aunts, uncles, etc. I estimate that the average child receives at least $200 per year in gift money. Once you've saved that, you'll be at 20% of completing your annual 529 contribution.
A good way to do this is to use a service like Backer. Backer makes gifting a 529 plan easy—so you can save for your kids as well as help a friend or family member save.
2. Check out Upromise. This is a free service designed to help families finance their college tuition simply by doing their regular shopping. Upromise offers cashback rewards for linking a credit or debit card and using that card at participating retailers. You can earn between 1% and 25% back at various retailers. Upromise says some members make at least $1,000 per year — which is almost all you need to fully fund a 529 plan. Plus, you can now get a $25 bonus when you link your 529 plan within 30 days of enrollment! UPromise is easy to sign up and save for college – check it out here.
3. Focus on making more money. Instead of thinking about where you can cut your budget, ask yourself: How can you add $100 of income to your budget? I'm a firm believer that everyone can make $100 more per month, and what better way to use that extra $100 than to fund a 529 plan for your child? If you don't know where to start, check out our list of over 50 ways to make extra money on the side.
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