With universities becoming more competitive and more expensive each year, many parents find the challenge of saving for their child’s college tuition daunting, to say the least. But even in today’s difficult economy, you can work towards building a college fund—of course, the earlier you begin, the better.
As tuition costs have risen, so has the popularity of 529 college savings plans, which are designed to help parents regulate their savings for a child’s education without resorting to loans. But if you open a 529 account, how much will you need to save each year in order to avoid being caught short?
According to Fidelity Investments, one of many firms that sells 529 account programs, it depends at least partially on the value of gifts and scholarships your child may qualify for based on the family’s annual income. By crunching the numbers, the company has come up with some interesting savings guidelines.
To create the guidelines, they first estimated what the expenses of four years of in-state public and private college would be 18 years from now for a parent with an infant today. The guidelines are based on data from the College Board about the average cost of public and private colleges today and how much those costs are growing annually, and assumes a 5.4% annual growth rate in costs for the next 18 years.
Next, using Sallie Mae data, Fidelity estimated approximately how much in scholarships, grants and family gifts families currently making $55,000, $75,000 and $100,000 annually could expect to receive – and subtracted that amount out from the expected cost. Then it estimated how much parents at each of those income levels would need to save in a 529 plan to cover future college costs. These annual numbers are based on starting the 529 while your child is still a baby:
According to Fidelity, a family now making $55,000 would need to save $48,000, or $160 month, to cover expenses of a public university or $107,000 ($410 per month) for a private one.
By contrast, a family making $75,000 would need to save $51,000 total, or $190 a month, for a public university and $115,000 total, or $410 monthly, for a private one.
Finally, a family now making $100,000 would need to save $55,000, or $250 a month, for a public university and $123,000, or $460 monthly, for a private one.
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Source: Top 5 In Real Estate