“If you think education is expensive, try ignorance.”
-Derek Bok, Harvard University President
We all know the cost of education as been increasing in recent memory and will probably continue doing so. A normal and somewhat understandable response would be to throw up one’s hands and/or bury one’s head in sand; doing nothing about it. A secondary option is to begin setting aside some money each month. The latter is what we’ll be talking about today.
While there exist several options for saving for college, I’m going to focus on 529 plans. A 529 plan is a tax-preferenced account that sometimes offers a tax break on the contribution, almost always offers tax-deferred growth, and almost always allows tax-free withdrawals for education related expenses. For information on specific plans available to you, click here.
So, how much does one need to save? Let’s assume you’d like to have funds available to pay for half of the cost of four years at a state school; here’s how much you’d need to save on a monthly basis to get there.
If you started when you’re child were born, you’d need to save $185 a month.
At five years old, you’d need to save $247 a month.
At 10, you’d need to save $384 a month.
At 15, you’d need to save $971 a month.
If you’d like to plug in your own numbers, click here.
Another option, and nice feature of 529 plans, is crowdfundingyour kid’s education. What I mean is, a 529 plan allows anyone to contribute to your child’s account-grandmas, grandpas, aunts, uncles, your neighbors; anyone is able to contribute up to $15,000 a year into the plan. All kidding aside, it’s a common practice for grandparents to contribute to 529 plans, click herefor more information.
Last month, I interview Katie Flynn from SavingForCollege.comon the Money Savage podcast. We go into depth on this topic and she provides a lot of valuable insight, you can listen on the links below.