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This Is How Much You Should Contribute to a 529 Account Each Month

What amount do you need to sock away each month to pay for your child's college education? Here's what you need to know.

College is expensive. This isn’t news. But if you have kids, it’s certainly something you consider because prices aren’t getting any lower. The average college in the U.S. costs $35,720 per year, according to EducationData.org. That’s triple what a year of college cost 20 years ago. 

As a result, saving for your child’s college costs can be challenging — and eye opening. “A lot of parents gasp when they hear how much college costs these days,” says Chris Gullotti, a certified financial planner in Framingham, Mass. “There’s definitely sticker shock.”

But that’s where the 529 account comes in. “It’s the best way of saving for college costs,” says Mark Kantrowitz, an independent financial aid expert and the former publisher of Savingforcollege.com. But given the rising costs of college, how much should parents put into a 529 account? 

What to Remember About 529 Accounts

As a refresher, a 529 plan is an investment account that provides tax benefits when used to pay for qualified education expenses for a designated beneficiary. The plans earned their name for the section of the IRS tax code that created them in 1996.

Much like a Roth IRA, after-tax contributions to a 529 plan are invested in mutual funds, ETFs, and other similar investments, and the fund grows on a tax-deferred basis. The savings can be spent tax-free if the money is used to pay for qualified higher education expenses, such as tuition, room and board, and required textbooks.

All 50 states and the District of Columbia sponsor 529 plans, but you’re not limited to investing in your own state’s plan. (You can learn about each state’s plan here.)

So, How Much Do Parents Need to Save in a 529 Account?

Tuition inflation rates vary depending on who’s calculating them, but Savingforcollege says tuition tends to increase about 5% annually. (They increased one-percent last year during the pandemic, but experts say that’s unusual.) 

Still, how much savings you need to build in a 529 plan depends on your goal, Kantrowitz says. Are you looking to pay full freight for your child’s college education costs, or only pay for a portion? Defining what your savings goal is when your child is born can help you determine precisely how much to contribute to their 529 every month to reach your goal.

Typically, per Kantrowitz, parents pay for a third of their kid’s college costs using savings, with the remainder coming from their income and student loans (taken out by either the parents or the child). Because college costs roughly triple over any 17-year period, Kantrowitz says your savings goal should be the full cost of a college education the year that your child is born. 

So, if your kid was born in 2021 and they plan on attending a private university, the total cost for four years would be $165,644.

How Much Should You Contribute to a 529 Plan Each Month?

Naturally, the sooner you start saving, the better, Gullotti says, “because of the power of compounding interest.” “Don’t wait until your son or daughter is in high school to start saving for their college costs or you’re going to be behind,” he adds. 

Following an estimation that college tuition increases by 5% per year and Kantrowitz’s one-third rule, a parent of a newborn would need to save $250 a month from birth for their child to attend an in-state four-year public college. 

Don’t want to do the math for your own scenario? There’s no shortage of online college costs calculators—such as tools from Savingforcollege, Fidelity, and College Board—that you can use to determine how much money you should be contributing to a 529 plan for your child based on information such as your child’s age, the type of college you’re saving for, and your household income. “Online calculators are easy to use, which is why I suggest them to my clients,” says Gullotti. 

Gullotti and Kantrowitz both recommend setting up automatic contributions to a 529 plan from your bank account. “You might be tempted to skip a few months if you’re not making contributions automatically,” Kantrowitz says. 

That might sound obvious but it’s well worth repeating: Stay as consistent with your 529 contributions as possible and your child’s college savings account will be in great shape.