How We Calculated Our 529 Contribution


33 Comments
529_math

We’re back! And by we, I really mean I. Johnny was never gone last week, just busy taking care of Baby Girl sans me. Last week I was playing the role of an inanimate object, very convincingly, I might add. I became sick Tuesday night and spent the second half of the week either sprawled on our bed or with my head in the toilet. We’re chalking it up to a bad case of food poisoning. I think Johnny’s convinced I did it on purpose to avoid changing diapers for a few days. Either way, we apologize for our absence the past week.

A couple of weeks ago, we discussed the pros and cons of a 529 college savings plan. Johnny and I have decided to go forward with starting to save for Baby Girl’s college so we can hopefully help her not have student debt like we did. And now all that’s left is figuring out just how much to save each month for the next 17 years.

Back in February when Baby Girl was just one month old, we discussed what we hope to be able to pay for her college. Here’s a recap of what we hope to cover:

  • All college expenses for freshman year (tuition, books, fees, housing, supplies)
  • Her college tuition for the following three years, if she maintains a certain GPA (housing and other expenses will be her responsibility)

Pretty simple, right? And now onto our calculations. Actually, first, here are a few decisions we made before calculating how much to save:

  • We’re going to save for four years of college for our girl. For one reason or another, it may take longer than that. But for the 529, we’re just saving for four. If we’re in a position to help with any additional schooling, then we’ll cross that bridge when it comes.
  • We’re saving according to today’s expenses. The 529 will (hopefully) gain enough interest to offset inflation.
  • Lastly, for the 529, we’re saving as if our daughter will go to our alma mater, which is a very inexpensive school. If she chooses to go somewhere more expensive, we’ll help as far as the 529 goes (and more as needed and as able to do so).

Okay, and now onto the calculation for real:

Four years of tuition: $20,000

Freshman year expenses (minus tuition): $10,000

GRAND TOTAL: $30,000

$30,000 / 204 months (17 years) = $150 per month toward her 529 plan

So there you have it. Like I said, our tuition was really inexpensive ($2500 per semester). Obviously, we’re planning and saving for a hypothetical world where everything turns out perfectly (she gets good grades, she chooses our alma mater, etc.). And we all know that rarely happens. But the point is that while we have the extra money to do so, we’re saving. Maybe it will cover all of her college. Maybe it won’t. But we’ll help where we can. And the 529 is going to make it a lot less painful.

One final note: We’re giving our girl a free pass her freshman year to adjust to the whole living away from home thing. But the buck (literally) stops after her freshman year for all of the extra expenses. Hence, demanding a certain GPA and not paying for all of her expenses the other three years. We hope that’s a good method. But we’re new at this whole parenting thing, so we could be totally wrong on everything.

We’d love to hear how any of you were affected by having to help pay or not having to help pay for your college. And what are your plans for covering/not covering your children’s college expenses?

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33 Comments

  • Reply Halsy November 18, 2013 at 8:24 am

    I think that sounds like a great plan and I hope you are able to do that for your little girl and she eventually holds up her end of the bargain! My husband and I definitely have different philosophies when it comes for paying for our children’s education. My family helped me some and his family
    didn’t help much. We started out our marriage $40,000 in school loan debt :( which was mostly his loans. However, he is an engineer so it was a good return on the money and I now stay at home with our daughter after we paid off my school loans. Ideally I’d like to help our children as much as possible but for now with only one income 529 contributions are not high on the list. However, eventually when I’m back in the workforce we will contribute more. We are contributing what we can now and we have made it known to family that she has a 529 and that is always an option for a gift. Our advisor told us that college is estimated to be $200,000 for a 4 year degree by the time our 18 mos old enters college. I just cant wrap my mind around that.

    • Reply Joanna November 22, 2013 at 12:12 am

      Whoa, that’s a lot of money! I can’t wrap my mind around that either! think the important thing is that we do what we can. It sounds like you and your husband are prioritizing where your money needs to go, and I think your little girl will be very grateful you were around when she was growing up!

  • Reply Kristy November 18, 2013 at 8:46 am

    I’m curious – what about the “fees” portion of “tuition & fees?” I went to a state school that also had an affordable tuition, but the fees aspect was where they really got you.

    I was very fortunate with my education. I received a Tsongas scholarship – each MA state university is able to award 5 of these to each freshmen class & it covers tuition & fees for 4 years if you maintain a 3.3 GPA. My dad paid for my books if I made the effort to search for better deals than the bookstore, & I only lived on campus for 3 years which left me with only ~$17K in debt. My dad then paid off 2 of the 3 loans, leaving me with only $3K in debt. I’ll have it paid off this spring, just under 3 years after graduation, which as a person making pennies in the nonprofit world is something I’m proud of. My dad’s money was in an IRA, not a college-specific account, so I was told never to count on it but I was very lucky to get it & hope to be able to help my future children as well.

    • Reply Joanna November 22, 2013 at 12:19 am

      Our fees were pretty insignificant as well, so we lucked out on that front. That’s great you were able to get help and scholarships. It sounds like you learned how to work hard without ending up in too much school debt when it was all said and done!

  • Reply Miranda November 18, 2013 at 9:07 am

    Your plan sounds great. We will probably end up saving around $50,000 per kid. I agree with your plan to only pay the first year’s expenses and then you’re on your own.

    As far as how it went with me, my parents contributed maybe $1500 to the whole shebang. They just weren’t in a position to help. I did get a ton of scholarships and grants my freshman year which meant that I only had to take out one small student loan for around $2000. I had in-state tuition at an already pretty affordable school and I lived on campus and had a meal plan and an on-campus job (that paid crap, but at least it bought a little gas to go home occasionally). I moved back closer to home after my freshman year and transferred to a local community college where tuition is only about $600 a semester for full-time. I still continued to get grants but I had a get a full time job to support myself (aka- pay for my apartment). Then the grants stopped when I got married. And that brings us to today where I am still working on finishing my education. It takes significantly longer when you’ve pledged to take on no more debt, pay off what you do owe, and still support yourself at a full-time job, but fortunately I’ve never had to put my education on hold and I’ve still managed to reach my (now our) financial goals. I’ll get there someday (It’ll probably be another two years until I graduate) but I know I will appreciate it that much more when I’m the only geriatric on stage getting my (debt-free) diploma.

    • Reply Joanna November 22, 2013 at 12:21 am

      That diploma is going to mean so much more because you’ve worked so hard through the whole process, Miranda. Well done on pushing through and making it a point to stay debt-free!

  • Reply Lindsey November 18, 2013 at 9:16 am

    Thanks for this! I also liked this article with 529 savings suggestions based on different incomes and private vs. public schools.

    http://bucks.blogs.nytimes.com/2010/08/24/what-you-should-save-for-college-each-month/?_r=0

    • Reply Joanna November 22, 2013 at 1:46 am

      Awesome article, Lindsey! Thanks for sharing. It’s nice to see some real calculations out there!

  • Reply Tabitha November 18, 2013 at 9:27 am

    My parents had 4 kids (Currently education-wise: one is married with 3rd little on the way, one has graduated with a BA, I have my AA, and the 4th is in his Sr. of High School) and their philosophy for us money-wise was 10, 40, 50.

    The first time we did a job and made a substantial amount of money (mine was helping to paint a neighbor’s barn – I think I made $80 and I felt rich!) Dad took us to the bank where we opened a savings account, and he explained to us the facts of life (well, money life) 10% of what we had made was tithe, 50% was to be put in that savings account and could not be accessed until we went to college or moved out on our own, the remaining 40% was ours to do with as we liked.
    Dad’s explanation for the 50% was that when we became adults the government was going to take 50% of our paycheck anyway and we should get used to it now and this way we would get this money back eventually.

    So as we worked and made money that 50% grew, while we were in high school if we took community college classes dad and mom paid for them, but once we graduated we were on or own, that 50% helped quite a bit, and our jobs during college helped with the rest. And so far none of my siblings or I have or had school debt. Yes we stayed in state, I attended a community college, we used FAFSA where we could, and my brother was able to live at home and commute to university , but we done got ourselfs college edumacation we did. 😉

    For my children, I plan to present the same philosophy to them, and also hopefully be able to set aside a small amount in an education fund for each one as they come along that would be given as a gift their first year of college to help give them a leg up, and beef up their saving account to help offset that first year shock.

    • Reply Joanna November 22, 2013 at 12:26 am

      Whoa, Johnny and I really love your dad’s methods. How awesome. What a great way to teach your kids about money! Do you think he’d mind if we steal his wisdom?? After hearing about it, I really think we’re going to do the same with our kids!

  • Reply Becky @ RunFunDone November 18, 2013 at 9:46 am

    I’m really confused about the tuition that you calculated. Obviously you mention that your alma mater was very inexpensive, but have you looked at how tuition has increased since you graduated? I just can’t imagine that it’s likely that you’ll be able to find a school with tuition that low in 18 years! I think I’m older than you – I graduated in 2003 – but tuition has increased a LOT (much more than inflation) since I graduated.

    • Reply Joanna November 22, 2013 at 12:37 am

      I can see how it might seem confusing. $2500 is the current tuition for our alma mater. When we were there it was closer to $1600 a semester, so it’s definitely gone up a lot. A 529 should grow much faster than the rate of inflation and should therefore compensate for the increase in tuition over the course of 17 years. Hopefully that makes more sense!

  • Reply Brian November 18, 2013 at 10:13 am

    My old man paid for my undergrad and it made life much easier. Of course I went to a state school so it really wasn’t that pricey for the quality of degree I got (too bad I don’t use it).

    As for our little guy we would love to drop $5K into his 529 each year (since we get a cool $1K tax credit for doing it), but that didn’t happen this year (got it in last year tho). I would like to think that doing at least every other year would cover the costs, but with the way things are rising I’m not so sure. Of course my dad also wants to help so he is putting $5K in every other year (he does $5K for his other grandchild the off year). He gets the benefit of a lovely tax credit and he gets to know he is helping fund his grandchildren’s educations!

    • Reply Joanna November 22, 2013 at 12:41 am

      That’s great your dad was able to help you through college. I’m sure it made for a very enjoyable college experience!

      The costs of tuition really are crazy. It will be interesting to see where they’re at when our kids are college-age. With both you and your dad putting money away, it sounds like your little guy is in good hands!

  • Reply Jess November 18, 2013 at 11:10 am

    My parents agreed to pay for my first year out of pocket amount, aka, the tuition not paid by grants, scholarships, and gov’t loans. This turned out to be like $10,000 which they paid in the form of a parent plus loan. I’m pretty sure they’re still paying on it 4 years later. I was left with the rest, which totalled about $50,000. Yeah, I chose an expensive Catholic college. I could have and should have picked a cheaper alternative, but I liked my education so I can’t say I regret it.

    With my own future children, I hope to save for atleast some of their higher education. My parents weren’t in a position to provide a lot of my education, but they did what they could. I hope I’m in the position to atleast cover a majority of tuition. As for their living expenses, books, etc. that is on them. Paying for a majority of my education and all of my living expenses through multiple jobs and hard work (and I have a whole lot more to pay don’t get me wrong!) has made me very independent so I want that for my child(ren) too, to feel that they paid their own way and nothing was just “given” to them.

    • Reply Joanna November 22, 2013 at 12:46 am

      I agree that paying your own way teaches you a lot of invaluable life lessons! I hope Johnny and I are able to know what balance to strike with our kids so that they learn hard work while still getting some help from us.

      And I think it’s great that you went to the school you did! If our kids have a more expensive school in mind, we’ll support them as much as we can. A good education at a good school is pretty priceless!

  • Reply Rob November 18, 2013 at 1:52 pm

    Well guys, we’re now retired and our two kids are both university graduates with kiddos of their own, but to address your request:

    While in university I lived at home with my parents. Back then I was lucky to get steady part time work at a national retail store chain (working summers as well as on weekends during the rest of the year). Thus over 4 years I was able to fully cover my own tuition expenses, leaving no student debt after graduation. During that time my parents covered my food and lodging expenses. Of course, in those days university education costs were much lower in the city where my wife and I grew up. My wife went to a year of business school but not to university so she too had no later student debt.

    While our kids were growing up we regularly contributed to Canadian RESP plans for both of them, similar to your 529 plans. When first starting these 2 plans (when they were babies) we contributed whatever amounts that we felt that our budget could afford – at that time, with no preconceived total employment expense in mind to try to meet. We were fortunate in that both our daughter and our son turned out to be smart hard working young people. Thus, they too saved tuition money working summer jobs. More importantly, however, as luck would have it, when each of them were preparing to enter their university freshman year, we were able to acquire 4 year full scholarships for each of them – one through my employer, the other later through my wife’s employer. The only stipulation being that each child had continue getting high enough grades in order to pass each of their undergraduate years in order to retain their scholarships. Thus, they too ended up not having any student debt after final graduation. Both our kids did live away from home during their university years so we did financially help them out somewhat at times but not to any great extent. We found that this approach greatly added in their path to financial maturity where they too had to learn how to live within a budget.

    In reading your plans for your child’s 529 plan, just one question.
    Have you taken into account (from a financial perspective) how you would handle things should you perhaps have one or more kids later on?

    As you may indeed have another little tyke in future, my suggestion would be not to plan to try to meet any specific total tuition cost (which probably would not be all that correct anyway, being so far in the future) but rather just try and figure what amount that you can “comfortably” contribute to your 529 plan right now. In time, should you win the lottery (lol), or otherwise earn more $$$ then you can then put more $$$ aside towards your kid(s) anticipated education expenses. In my opinion that approach would be much easier to manage.

    • Reply Joanna November 22, 2013 at 1:00 am

      Great advice, Rob! It sounds like you helped your children find a good balance between working hard and helping them some as well. You’re right that it’s pretty impossible to calculate how much college is going to cost 17 years from now! I like your idea to save what we can comfortably save. It’s tricky to find the balance of how much to save in a 529 since all of the money must go toward education expenses. In the meantime, we’re also just trying to save and invest our money in general. That’s always a good plan, right? :)

      • Reply Rob November 22, 2013 at 7:32 am

        Right you are, Joanna. And don’t be shy to enlist the help of Baby Girl’s grandparents. I’m sure that they’re always a soft touch for a contribution on birthdays and Christmas! :-)

  • Reply Tara @ Streets Ahead Living November 18, 2013 at 7:46 pm

    I don’t know if i’ll be saving for my future children’s college but I definitely agree about the 1st year only plan. I might push the support to two years, especially if they can’t be an RA until junior year but I dang sure will push the good grades!

    • Reply Joanna November 22, 2013 at 1:41 am

      Yes, good grades = scholarships, so we’ll be pushing for those as well!

  • Reply Amanda November 18, 2013 at 7:49 pm

    I don’t know . . I’m torn. The folks I knew in college who had their education paid for by their parents didn’t seem to value the experience as much as the ones who were suffering, working every weekend to skimp by. I like that you have some stipulations with the money – perhaps that’ll help. And maybe my attitude will change once I have kids of my own! But right now, I wouldn’t consider saving for my kids’ college expenses until all our other debt is paid.

    • Reply Joanna November 22, 2013 at 1:04 am

      There are more important things than saving for your kids’ college, and you’re smart to keep your other priorities in mind!

  • Reply Jackie L November 19, 2013 at 11:49 am

    I was 100% responsible for my own education. I started a savings account at ten years old and began babysitting at age eleven. My mom’s rule was as long as I was in school then I could live at home rent free with fridge access. So I studied hard, got a few small scholarships, and worked a part time job. I took classes not related to my major at a community college to save money and commuted to a local university. I made it through 3 years debt free. After that, I entered pharmacy school, which put me in serious debt. I did not complete the program and have a student loan payment equal to my monthly rent. I regret not waiting to pursue further education until I could cash flow it.
    As for my future children, I don’t plan to help with their education. With my student loans, I have not started saving for retirement and I know that has to come first. My sister has a great plan though that I would adopt if I could. Her children are responsible for paying for the first two years, which are the cheapest, and if they make it through then she will pay the last two years so they can work less and focus on school since the last two years are the toughest.

    • Reply Joanna November 22, 2013 at 1:06 am

      You’re smart to plan for retirement first, Jackie! Retirement definitely takes precedent. And your kids will thank you for keeping your priorities in line when you don’t need to rely on them financially when you retire!

      And I love your sister’s plan for her kids!

  • Reply Emily @ evolvingPF November 19, 2013 at 1:48 pm

    I think it’s terribly difficult to try to decide how much to save for kids’ college, so I applaud you for making an estimate and getting started. However, I think it is very unrealistic to think that your returns will will keep up with the inflation of tuition prices, especially given that you are planning to save that amount over the life of your child and haven’t put it in as a lump sum right now. Doing something is obviously better than doing nothing, but I think you should revisit this plan in a couple years and check how tuition prices are rising.

    • Reply Joanna November 22, 2013 at 1:22 am

      You’re right that this definitely shouldn’t be a set-it-and-forget-it type of plan. That said, uncertainty shouldn’t paralyze us from getting started now. Five years from now, we might find that we need to double what we’re putting in, but hopefully what we’re doing will make a difference.

  • Reply Well Heeled Blog November 19, 2013 at 6:24 pm

    Agreed with all the comments that say it’s unrealistic to expect investment gains to keep up with tuition increases – especially as tuition from both public and private colleges are exceeding inflation by a hefty amount. But still – something is better than nothing, and the earlier you start and the more consistently you save the more you will have at the end.

    To further add to the 529 plan, you can also encourage relatives/grandparents to contribute monetary amounts for your baby’s birthdays, Christmases, etc. The gift of education is an amazing gift, and its effects will be appreciated long after the toy has been played and tossed away.

    • Reply Joanna November 22, 2013 at 1:29 am

      Agreed that no one can predict how much tuition will cost in 20 years. That said, the money is better put in an investment vehicle than it is sitting under your mattress or in a bank. Also, what we’re saving should be enough to cover her expenses if she goes to our alma mater.

      And great idea on encouraging loved ones to contribute in lieu of gifts some years!

  • Reply sharon November 19, 2013 at 9:30 pm

    We have already paid for two college tuitions and are starting to prepare to pay for a third (and a fourth the following year!) The public schools in state average $22,000/year which includes tuition, room/board and fees. (Not books or other expenses). My concern for your plan is that Baby Girl may have to take out private loans to afford school as FAFSA only allows a total of $27,000 for four years, even if she goes to a inexpensive public school. (Sad, but seems to be the case.)

    Unfortunately, we did not prepare well (very little savings), and will be paying out of pocket for college. (No extras for us for the next 5 years!) My daughter will be responsible for FAFSA, books and spending money.

    My suggestion for you is to bump up your savings (if you can) by another $100. I think you’ll be in better shape by the time Baby Girl goes to school (which, by the way, goes way faster than you can imagine!)

    Either way, you will be way ahead of the game by saving something! :)!

    • Reply Joanna November 22, 2013 at 1:39 am

      Thanks for the insight, Sharon! We’ll definitely revisit our contributions in the next few years and up them where we see fit. While the 529 will be a nice cushion, we may have to pay out of pocket as well. But we’re hoping that by putting our money in a 529 target fund, it will grow a lot by the time our girl is 18!

  • Reply Erika December 2, 2013 at 12:02 pm

    My parents saved and offered myself and my brother $15,000/year (amazing, I know) considering that in-state tuition is around $5,000 a year and other expenses would be $10,000. However, they told us that we could use it however we wanted, so if we got scholarships or wanted to take out loans a more expensive school would be an option.

    We both did well in high school and got full/almost full tuition scholarships to private universities, and used the money from our parents for other expenses like housing and books. We both graduated without debt from undergrad, and it was the best graduation gift ever! I thought that this was a really good system because it encouraged us to work hard for the schools and scholarships that we wanted, but gave us the option to go to school debt-free if we wanted to stay in-state!

    • Reply Joanna December 3, 2013 at 9:30 am

      That’s awesome, Erika! Your parents planned ahead fantastically!

      That’s how we’d definitely like to present this to our children. We want to encourage them to work hard in school and “pay” their own way with scholarships, if possible. That way, their 529 money can be used to help offset their daily expenses (instead of loans) so they can focus 100% on schooling. Thanks so much for sharing!

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