529 Plan and College Savings

Archive for January, 2008

Question: Is $175 a month for a child’s 529 college savings plan enough?

Suppose I want to put him in a good state college like the University of Oklahoma or LSU or Texas A&M.

Will this cut it? I don’t mind blending with loans and grants, but i want to make sure they can get their degree and not have to work if possible. I worked through college but it took me forever to finish and had to nearly drop out. I ended up borrowing off my mom the last year.
I can change this contribution but I can’t get too extreme due to budget constraints. I have seen some suggestions of $600 a month. I can’t afford that for two kids.

Answer: Okay – as I’m sure you can guess, this question can’t be answered without knowing how old your son is. If he was born yesterday, you have 18 years to save towards his educational expenses – if he’s already 10, you only have 8 years until his college bills begin knocking on your front door.

Let’s look at a couple of examples:

It’s difficult to accurately predict what it will cost to send a student to college in the future, but we can make certain assumptions, based on historical trends in college cost inflation.

Get ready to be scared – if your child will be starting college in 18 years, the estimated total cost of a 4-year degree program at an in-state public university is approximately $174,000.

If your child were to start that same school just 10 years from now, the estimated cost would drop to $118,000.

You can already see why it matters how long it’s going to be until your child heads off for State U.

Let’s get back to our example where your son is 18 years from college – now we have to make a prediction about the rate of return on your 529 Plan. For the sake of argument, let’s predict a fairly reasonable rate of return of 6 percent a year.

If you contribute $376 a month to your 529 Plan for 18 years, you’re on track for covering that $174,000 cost of education.

On the other hand, if your son is already 8 years old, and will be attending college 10 years from now, you would have to contribute $559 a month, just to make that $118,000 goal to cover the anticipated cost of a college education beginning in 2018.

So there you go – you need to do your own calculations, based on your son’s age, and giving a little more thought to where he’s going to go to school. If you choose an out-of-state college, just remember that you’ll be paying a HUGE out-of-state tuition premium that will completely overwhelm your ability to save. If your son is not a Louisiana resident, the expected cost of an LSU degree in 18 years would be $264,000! Ouch.

I’m linking to a great calculator from Smart Money Magazine that you can use to test your own “what-if” scenarios. I hope this helps. Good luck to you and your son!

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