College Savings Planner Calculator
This calculator can help you estimate the amount of money you will need to invest each year in order to pay for your child’s college education. First enter the number of years before your child will be attending college, any outside funds that will be available, and any current savings that could be dedicated to the college fund. Then enter your gross annual income, an estimated rate of return on your investments, and an estimated annual inflation rate. Then enter the annual cost of tuition. This number will be approximated based on the type of school your child plans to attend. A text box will appear near each text box if you need more help filling out that section.
Click on CALCULATE and you’ll see a breakdown of the costs associated with your child’s education and what you’ll need to invest. You’ll see everything from the total estimated cost of tuition all the way to the percentage of your annual income that you will need to invest each year for your child’s future schooling.
Projected Total Four-Year Costs of Attending College: These costs are based on The College Board's Annual Survey of Colleges for the 2013-2014 school year and include tuition and fees, room and board, transportation, books, and other expenses. The costs are enrollment-weighted and inflated based upon your selected estimated annual rate of inflation. The calculator assumes no additional investments or earnings once the child starts school.
6 Tips to Saving for Your Child's Education
The current estimates for a year of college range from almost $9,000 a year to almost $55,000 a year. Multiplied by four to six years, your child's college education will come at a very costly price. Waiting until the last minute to figure out how to pay for your child's education isn't possible or smart.
Start Saving Early
The most important thing that you can do is start saving early. Using an early investing calculator, an initial investment of $1000, with monthly additions of $50 at a 5% interest rate from birth will yield almost $19,700 by age 18. The same investment and additions started at age 5 yields $17,300 and at age 15 yields only $3,100!
Even if you start with an initial investment of $4,000 at age 5 (the total of your $1,000 investment at birth and $50 a month for 5 years), the total at age 18 is $18,400, still less than starting at birth for the same amount of money. You will earn more money on your initial investment by starting to save as early as possible.
Teach Your Child the Value of Money
Your child will value his education more if he has a part in paying for it. Have him contribute money toward his education, by putting a percentage of birthday and other holiday money and eventually his paychecks toward his education. He may not understand the meaning of what he is doing when he is young, but he will greatly appreciate his education later in life.
However, don't start a savings account in your child's name with the intent for her to save large amounts of money toward school. When it comes to financial aid, any money in a child's name can be hurtful. Parents are expected to put 5.6 percent of assets toward a child's education; students are expected to contribute 20 percent of assets.
Have Family Members Pitch In
Encourage family members to help save for your child's education, too. They can open their own accounts or they can contribute to your fund. Especially when children are small, birthday and other holiday gifts can include money to put toward their college education. Frequently, family and friends are looking for meaningful ways to help your child and this is the perfect way that they can contribute to your child's future.
Choose How to Invest
There are many different investment choices when it comes to saving for college, each one with pros and cons. A Coverdale Education Savings Account is a federal custodial account setup to pay for qualified educational expenses for a beneficiary. A Coverdale ESA can be opened by anyone who has an income level below $110,000 (or $220,000 if filing jointly).
The funds deposited into a Coverdale account can be used not only for college but for K-12 expenses, as well. As long as withdrawn funds do not exceed educational expenses, the funds, as well as interest earned, are tax-free. The maximum contribution allowed per year is $2,000.
A 529 Plan is another great option for saving for your child's education. Although 529 Plans vary slightly from state to state, there are commonalities among all 529s. 529s allow interest to grow tax-deferred and income tax is waived altogether if the money is used for qualified educational expenses. $12,000 can be invested annually.
The 529 plan remains in the account holder's name, rather than the child's name. If the child doesn't use the money, the money can be transferred to another family member. The account holder can also withdraw the money for other purposes but will have to pay income tax and a 10 percent penalty.
Prepaid College Tuition Plans are another investment option. Essentially, you buy a percentage of college tuition at current rates and cash them in when your child goes to college. Considering that college tuition has increased about 130 percent since 2000, you can end up saving a lot of money. If tuition is $10,000 a year, a $5,000 contribution would buy 50 percent of a future year's tuition.
The problem with prepaid tuition plans is that not all states have them and not all colleges participate. Based on the economy, not all prepaid tuition plans are open to new investors and may not be able to fulfill their obligations. Make sure that your state backs the plan with the full faith and credit of the state.
Roth IRAs, although usually thought of as a retirement investment, can also be used to save for your child's education. Although you are taxed on the money that you put into a Roth IRA, you aren't taxed on the money that you withdraw. There is also no penalty for withdrawing money prior to the age of 59 and a half to pay for qualified educational expenses.
The advantage of a Roth IRA is that if your child ends up not needing the money, you can use the money for yourself as retirement, rather than having to transfer it to another family member or pay a penalty to withdraw it.
If, despite investments, you still don't have enough money to fully pay for your child's education, look for ways to lower educational costs. Some high schools offer dual-credit classes, classes taken for both high school and college credit. Since most teens are unsure of their major, or change their minds, a community college is a cost-effective option while they figure it out. Encourage them to do well in high school so they can apply for scholarships. Fill out financial aid papers early to find out what grants that your child may be eligible for.
Ask For Advice
If you don't know where to start, ask for advice. Banks and investment firms have financial advisors that can help you open an account. People who use financial advisors tend to make more money than people who do not. Some accounts can be opened for as little as $100, so there is no reason to not begin investing in your child's future today.