We all know college costs a fortune, and many parents would rather leave it at that. But to get a realistic handle on how much you need to save for tuition, you have to get into the real numbers. This terrific calculator developed by Max Osbon will help you quantify the challenge ahead and determine how much to put away each year.
You only need five pieces of data to make your college tuition calculation. You’ll enter these in the orange fields on the left side of spreadsheet:
- The current age of the student
- Your current savings/investments set aside for college in a 529 account or elsewhere
- The expected rate of return on your college investment portfolio
- The current cost of target schools
- The annual increase in tuition rates
You’ll need to make estimates for some of these, but that’s fine. Try a range of numbers (state university versus Ivy League) and see how the results change. The spreadsheet returns a lot of information, but the most important result is the green Annual Contribution field. This number is a ballpark figure for the yearly contribution you’ll need to make to college savings, starting now and continuing through the student’s senior year.
The graph in the lower left shows how your balance will change over time. The chart on the right side goes into more detail, showing money going in and out of savings from today through graduation.
Don’t have a 529 account yet?
I strongly recommend that you consider it. The 529 is a tax-favored account that allows your investment for education to grow tax-free, even when you withdraw funds to make tuition payments. Each state has its own plan, but you can use another state’s plan if it better fits your needs. Here’s some more 529 info.
The numbers this calculator produces can seem pretty daunting, but they’re helpful to put things into perspective, especially the need to get started with savings as early as possible. Remember that the tuition amount you enter could be reduced through merit aid, student loans, campus jobs, and other factors.
As always, we recommend that your college portfolio be invested in low cost index ETFs. Some states make that easier than others.
I’d be happy to discuss your investment plan for college anytime, even if your kids are still looking ahead to kindergarten graduation.
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Calculator results are shown for illustrative purposes only. There is no guarantee that investment returns will meet projected levels. Consult a tax professional for rules regarding 529 College Savings Accounts.
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