How It Works

College costs continue to rise, making early planning essential. A 529 plan offers tax-advantaged growth for education expenses. The key is calculating your target based on projected future costs and determining how much to save monthly to reach that goal.

The Formula

Future College Cost:

=current_cost * (1 + inflation_rate)^years_until_college

Monthly Savings Needed:

=PMT(return/12, years*12, -current_savings, future_cost)

Example

Your Situation:

Child’s Age: 3
Years Until College: 15
Current Annual Cost (Public In-State): $25,000
Education Inflation: 5%
Expected Return: 6%
Current 529 Balance: $5,000

Step 1: Calculate Future Cost (4 years)

=$25,000 * (1.05)^15 * 4 = $207,893

Step 2: Monthly Savings Needed

=PMT(6%/12, 15*12, -5000, 207893) = $658/month

Current College Costs (2024-2025)

School Type	Annual Cost	4-Year Total
Public In-State	$23,000	$92,000
Public Out-of-State	$41,000	$164,000
Private University	$56,000	$224,000
Elite Private	$80,000+	$320,000+

Includes tuition, fees, room, board, books, and expenses

Building a College Savings Calculator

Input	Value
Child’s Current Age	3
College Start Age	18
Current Annual Cost	$25,000
Years of College	4
Education Inflation	5%
Current 529 Balance	$5,000
Expected Return	6%

Output	Formula
Years Until College	`=B2-B1`
Future Annual Cost	`=B3*(1+B5)^B8`
Total Future Cost	`=B9*B4`
Monthly Savings	`=PMT(B7/12, B8*12, -B6, B10)`
Total Contributions	`=B11B812`
Growth from Investing	`=B10-B6-B12`

Results:

Future annual cost: $51,973
Total 4-year cost: $207,893
Monthly savings: $658
Total contributions: $123,440
Investment growth: $79,453

Future Cost Projections

Public In-State ($23K current)

Child Age	Years to College	Future 4-Year Cost
Newborn	18	$220,000
5	13	$144,000
10	8	$106,000
13	5	$92,000

Private University ($56K current)

Child Age	Years to College	Future 4-Year Cost
Newborn	18	$536,000
5	13	$350,000
10	8	$258,000
13	5	$225,000

5% education inflation assumed

Monthly Savings by Target

How much to save monthly for different goals (6% return, starting from $0):

Target	18 Years	13 Years	8 Years	5 Years
$100,000	$258	$423	$828	$1,476
$150,000	$387	$635	$1,242	$2,214
$200,000	$515	$846	$1,656	$2,952
$250,000	$644	$1,058	$2,070	$3,690
$300,000	$773	$1,270	$2,484	$4,428

Start early - the difference is dramatic.

529 Plan Tax Benefits

Federal Benefits

Tax-free growth - no capital gains taxes while invested
Tax-free withdrawals - for qualified education expenses
No federal deduction - contributions are after-tax

State Benefits (varies by state)

Benefit Type	States
Full deduction	AZ, AR, KS, MO, MT, PA
Partial deduction	Most other states
No income tax	AK, FL, NV, SD, TX, WA, WY
Tax credit	IN, UT, VT

Check your state’s specific 529 tax benefits.

What 529s Cover

Qualified Expenses (Tax-Free)

Tuition and fees
Room and board
Books and supplies
Computers and internet
Special needs equipment
K-12 tuition (up to $10K/year)
Student loan payments (up to $10K lifetime)
Apprenticeship programs

Not Covered

Transportation
Health insurance
Athletic fees (unless required)
Extracurricular activities

Investment Strategy by Age

Age-Based Approach

Child’s Age	Stocks	Bonds	Cash
0-5	80-90%	10-20%	0%
6-10	70-80%	20-30%	0%
11-14	50-60%	40-50%	0-10%
15-17	30-40%	40-50%	10-20%
18+	10-20%	30-40%	40-50%

Most 529 plans offer age-based portfolios that adjust automatically.

Partial Funding Strategy

You don’t have to save for 100% of costs:

Funding Level	Your Savings	Other Sources
100%	Full cost	None needed
75%	$150K of $200K	$50K loans/grants
50%	$100K of $200K	Scholarships, work
33%	$67K of $200K	Multiple sources

Formula for partial funding:

=PMT(return/12, years*12, -current, target*funding_percent)

Impact of Scholarships and Aid

Adjust your target for expected aid:

Aid Type	Typical Amount
Merit Scholarship	$5K-$25K/year
Need-Based Grant	Varies by income
Work-Study	$2K-$4K/year
Federal Loans	$5.5K-$7.5K/year

Adjusted target:

=full_cost - expected_scholarships - expected_grants

Multiple Children Strategy

Same Account, Different Kids

529s can be transferred between family members (siblings, cousins, even yourself).

Separate Accounts

Easier to track and customize investments per child’s timeline.

Monthly Savings for Multiple Kids

Children	Ages	Combined Monthly
2	3, 5	$1,100-$1,400
2	8, 12	$1,800-$2,500
3	2, 5, 8	$1,600-$2,200

Grandparent 529 Contributions

Benefits

Reduces grandparent’s estate
Gift up to $18K/year per child (2024) without gift tax
Can “superfund” 5 years at once ($90K)

FAFSA Consideration

Grandparent-owned 529s no longer count as student income on FAFSA (as of 2024-25), making them more attractive.

What If They Don’t Go to College?

Options for Unused 529 Funds

Transfer to sibling - no penalty
Use for graduate school - same beneficiary
Roll to Roth IRA - up to $35K lifetime (new 2024 rule)
Pay student loans - up to $10K
Keep for grandchildren - change beneficiary later
Withdraw - pay taxes + 10% penalty on earnings only

Roth IRA Rollover (New!)

After 15 years, up to $35K can move from 529 to beneficiary’s Roth IRA:

Annual limit: $7,000 (2024 Roth limit)
15-year account minimum
Subject to Roth contribution limits

Comparing 529 vs. Other Options

Option	Tax Benefit	Control	Flexibility
529 Plan	Tax-free growth	High	Education only
Coverdell ESA	Tax-free growth	High	$2K/year limit
UTMA/UGMA	Kid’s tax rate	Low	Any use at 18/21
Taxable Account	None	High	Full flexibility
Roth IRA	Tax-free growth	High	Penalties if early

Pro Tips

Start at birth - 18 years of compound growth is powerful
Automate contributions - set up automatic monthly transfers
Use state tax benefits - some states offer significant deductions
Consider room for growth - if child gets scholarships, use for grad school or transfer
Don’t over-save - balance 529 with retirement savings; you can borrow for college but not retirement
Check plan fees - low-cost index funds matter over 18 years

Common Errors

Using too low inflation - education costs rise faster than general inflation (use 5-6%)
Forgetting room and board - tuition is only part of the cost
Over-concentrating - put enough in 529, but don’t skip retirement savings
Ignoring state benefits - may be worth using your state’s plan for tax deduction
Aggressive investing near college - shift to conservative as college approaches

College Savings Calculator (529 Plan)