How Much Should I Save?
When considering your child’s future, you may ask yourself “How much should I save for my child’s future college expenses?” Although costs can be compared across colleges, this question comes down to personal preference. To help navigate through the options, CollegeAdvantage has some guidance to help you select a savings goal that’s right for your family and your circumstances.
Maybe you want to cover some of your child’s college expenses, like books or part of tuition. Maybe you would like to pay half of their tuition and room and board with your child covering the rest of the costs. Or maybe your goal is to cover nearly every college expense for your child.
Whichever scenario you choose, College Advantage offers useful tools to help set and meet your savings goal. If you need help determining how much to put aside each month, use our College Savings Planner to receive personalized saving information. After inputting your college savings goals and examining your total projected costs, you will receive an estimated monthly amount needed to meet your savings objective. Please note, this is an example for illustrative purposes only. For additional advice, consult with your legal, financial, tax, or other advisor.
To create a savings plan on College Savings Planner, enter your child’s name and age. From there, a line will automatically populate the annual cost for college: public, in-state, and four-year college. There is also an option to select a specific out-of-state university. The following box will ask you to input the amount you plan to contribute, whether it be monthly or yearly, then you will be provided with an estimated savings balance. From there, you’ll receive an annual rate as well as how much of the costs will be covered by you.
So with that information, you can now apply it to an example. Imagine Brad, who is a one-year-old child. Let’s plan on him entering a public, in-state, or four-year college program. The 529 plan will start with an initial $2,000 contribution, planned monthly contribution of $200, and expected coverage of half of his college costs. With a selected hypothetical rate of 6%, hit calculate to receive the results. These will include the estimated total education cost, the amount to be funded, the dollar amount you will cover based on current savings and if there’s any additional steps to take to reach your saving goal. Again, please remember that this example is for illustrative purposes only. You should consult with your legal, financial, tax, or other advisor for advice. You can keep working on the College Savings Planner until you create a plan that’s right for you and your family. Remember, it’s your plan, your way.
If you are still considering a College Advantage Direct 529 Plan, check out the cost of waiting tool to see how waiting can affect the balance in your account. The earlier you start, the longer you can take advantage of compound interest. Are you looking at the investment options and are wondering what your risk tolerance is? We can help you determine it. Lastly, if you are currently saving money in a taxable savings account, rather than taking advantage of the tax-free growth in a 529 plan, we can show how the difference can affect the account balance.
If you’re already putting money aside in an Ohio 529 Plan, you can track your investment performance, see if you need to change your saving strategy as your child grows, or perform regular maintenance on your 529 account.
Outside of automatic recurring contributions, there are also many ways to add to your 529 account. You can contribute your tax return refund, and add your disappearing expenses (those costs that are in your family’s budget for a limited time span — like daycare) to the account. You can also join Upromise, in which your membership can earn you cash back on purchases you would typically buy.
Lastly, you don’t have to save on your own. Family and friends want to give meaningful gifts for the milestones in your child’s life. You can ask them to consider giving the gift of college by contributing to your child’s 529 plan in lieu of gifts for baby showers, birthdays, holidays, graduations, and many other special occasions. Through Ugift, you can set up a code which authorizes gift givers to donate online to your 529 plan without needing the actual account number. You’ll simply give a Ugift code to your family and friends. They can then visit Ugift529.com to make their electronic contribution securely from their bank account.
And as you save, don’t forget about another tax advantage of a 529 plan. If you are an Ohio taxpayer, contributions to CollegeAdvantage may be deducted from your Ohio taxable income in any amount up to $4,000 per year, per beneficiary, with unlimited carry forward. This means that $4,000 per year is not a contribution cap. Should you choose to contribute more than $4,000 in a calendar year, any amounts above $4,000 may be deducted in future years, in increments up to $4,000 per year, until all contributions have been deducted. If you have accounts for each of your children, you receive the deduction to your Ohio taxable income for contributions made to each beneficiary’s account.
So, how much should you save for your child’s future college expenses? That is up to you. But CollegeAdvantage is here and ready to help you start.
The Ohio Tuition Trust Authority does not provide investment advice. The information contained herein is informational only and should not be relied upon exclusively to make your investment decisions. Investment options should be selected based on your investment goals, risk tolerance, and savings time horizon.
Posted on August 26, 2016