Today’s question is for those just beginning to save, or even just beginning to think about saving for their child’s college.
The question is:
“How much do I need to save each year to fund my child’s college?”
The exact answer is obviously going to depend on where your child goes to school. But for an example, let’s just use the national average of an in-state 4 year public university, whose cost is $22,000 per year today.
So, at $22,000 per year for 4 years, the total we are looking at is about $88,000. If your child is going to college in 10 years time, and you get no growth or interest on your savings, that means you need to invest $8,800 per year. Ouch!
But thankfully, with 529s and other ways to invest and save for college, hopefully we can get some tax free growth before our child heads off to college.
So, if we assume our investments grow at 5% per year, instead of $8,800 we find we just need to save about $6,900 per year.
Now that’s a little better obviously still a lot. But don’t get discouraged if you can’t afford to save that much per year. Because actually, there are very good reason to NOT fully fund your child’s college expenses in a 529.
That is because there are numerous tax breaks available for money used to pay tuition and other qualified expenses that doesn’t come from a 529 account. There isn’t enough time to get into the details here, so look at a blog post on our website for this in the future.
A lot of this is going to depend on how old your child is, and where they go to school. If you want specifics on how much you need to save per year for your child’s college, get in touch with us today to start helping you plan.