College Savings Calculator
Questions about saving money for college?
There are many reasons why it’s a good idea to start saving for college now:
Take advantage of 529 plans
You get federal and state tax breaks as you set aside money after tax in a 529 investment plan, and your college savings grows tax-free. When it’s time to withdraw the money for qualified education expenses, you don’t have to pay taxes on the interest you earn over time.
Reduce your need for student loans
While you earn interest with a 529 plan, you have to pay interest on student loans. Even if you supplement your college savings with a student loan, any amount you save now will reduce the amount you need to borrow, decreasing the amount of principle + interest you’ll have to pay back with a student loan.
Reduce stress around college decision
The transition to higher education is stressful enough without the additional worry of how you’ll pay for it. Studies show that students with any amount of dedicated college savings are more likely to attend college and earn a degree.
Financial experts offer different guidelines to help you estimate how much you should save for college. Some current, conservative estimates for setting aside college savings each month, for each child suggest: $300 for an in-state public four-year college; $500 for an out-of-state public four-year college; and $650 for a private, non-profit four-year college.
If those estimates seem daunting, many experts also use a “one-third rule” as a guiding principle for college savings. In this scenario, you assume that one third of college expenses will come from college savings, one third from current income and financial aid, and one third from student loans.
Saving for your retirement should take priority over saving for college. And realistically, any amount you’re able to set aside for college today will be very helpful in the future.
The best way to save for college is to automatically set aside money each month in a tax-advantaged 529 plan, or “qualified tuition plan.” These are investment accounts sponsored by states, state agencies or educational institutions. Work with a trusted financial professional to help determine how to invest your monthly contribution to a 529 plan.
Additionally, opening a youth savings account on behalf of your child now can help teach them the importance of savings, as well as provide supplemental savings for expenses related to higher education but not qualified under 529 plan rules. Learn more about a UMB Youth Savings account with no monthly service fee and a $25 minimum opening balance.
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