My wife and I have been actively planning for our kids’ college educations for a while. As for many people, creating a plan to efficiently save enough for our kids’ college careers is a difficult task. We found that creating and maintaining a 529 savings plan can help. In fact, it’s one of the most popular plans among parents.
Planning Ahead
The big question is: how do we begin to save for their future college expenses? How much do we need to save? Where do we even start? What are my options for accomplishing this in the easiest and most efficient way?
Being a CPA, I did research on the tax and accounting side of things. We found out that planning ahead and coming up with a 529 savings plan makes it much easier. Here are a few factors to consider:
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Average Costs
An average four-year university tuition currently runs around $50,000 not including room and board as well as other living expenses. With inflation, we will most likely be facing a $250,000 total tuition bill once our son is ready to graduate with his hard-earned bachelor’s degree.
The first step is to come up with a solid game plan for raising $250,000 over the next 17+ years. Assuming a 5% annual rate of return, we would need to contribute just under $750 per month over the next 17+ years in order to meet his full college tuition needs.
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529 Savings Plan
529 savings plans have become one of the most common ways to save for college. Any appreciation in a 529 account is tax-free as long as the funds are used for future college or trade school education expenses. If for some reason our son doesn’t use all of the funds in his 529 account, we’re allowed to transfer the remaining balance to our future children, nieces, nephews, or anyone else we’d like to help that needs it for educational purposes.
529 accounts are typically sponsored by individual states. Luckily, you aren’t limited to the state you live in. Each state plan varies by the minimum and maximum amount you’re able to contribute in addition to having a variety of investment options. Visit this link to compare and contrast each state’s 529 plan.
Since we live in California, we decided to invest in California’s 529 plan. The California plan’s minimum/maximum contributions and investment options best suited our needs.
529 plans are a great option and typically pretty straightforward. That’s why so many people choose to use it in order to save for their child’s college career. Have you used any different type of college savings account that worked in your favor?
By: Ben Hubbell, Manager at WHH
