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This 529 calculator will help you determine the rising cost of education – from kindergarten to college – and the required monthly contribution you need to make to a 529 plan to afford the education cost in the coming years. If you have a child or ward, you are probably already thinking about how you will pay for their education πŸŽ“. The information below will explain how you can achieve this with 529 savings plans. The great thing about 529 plans is that they have no age limits πŸ§“, so you can even set up a 529 plan for yourself if you need it! Use our 529 plan calculator to estimate the savings based on your contribution to the 529 savings plan when you begin investing in future education.

By taking advantage of a 529 plan, you will enjoy the benefits of growing your investment tax-free, and you may even eliminate the need for a student loan in the future. But just in case someone might need it, we have a student loan calculator to help you in situations. If you have already made it into college - congratulations! You may want to check out our college GPA calculatorπŸ’― to keep track of your grades while you study. If you keep reading, you will learn answers to common questions ❓ like:

  • What is a 529 account?
  • How does a 529 plan work?
  • What are qualified education expenses you can sponsor with a 529 plan?
  • How to calculate college savings?

The 529 account - What is a 529 plan?

A 529 plan is a savings plan that allows you to save and grow your investment towards paying for education tax-freeπŸ“ˆ.

The name "529 plan" comes from the fact that these plans are authorized by Section 529 of the Internal Revenue Code created in 1996. Legally known as a "qualified tuition plan", these plans allow you to contribute to a 529 savings account where interest is tax-deferred. That means, unlike regular savings or investment accounts where you are required to pay taxes on interest returns to the IRS annually, nobody taxes your 529 accounts! πŸ’° And when you eventually want to make withdrawals or take distributions from the 529 accounts for qualified education expenses, you don't pay any federal taxes.

But, you have to understand all the 529 rules to take full advantage of a 529 plan. For instance, you need to pay attention to what education expenses qualify for the tax advantage.

Types of 529 savings plan

There are two types of 529 plans:

  • Education savings plans; and
  • Prepaid tuition plans.

The majority of 529 plans are education savings plans, which involves investing into a 529 college savings account which will be withdrawn to pay for educational costs. Education savings plans are primarily used in saving for college; however, additions to the plan now allow it to pay for K-12 tuition πŸ‘Ά, computers πŸ’», student loan payments, and even some culinary and cosmetology schools. You can find a list of all eligible schools on the Saving For College website.

Prepaid tuition plans allow you to prepay all or part of a participating college or university tuition costs at the current price for future enrollment. That means you can pay for the future cost of education at today's price for the beneficiary of the 529 savings accounts. These plans are usually state-sponsored for residents in the state and do not include K-12 education. The Private College 529 Plan is also a separate prepaid plan for private colleges sponsored by private colleges.

What are qualified education expenses?

The government first designed the 529 education plan to cater for "qualified higher education expenses", and so the plan targeted college savings. Then, in 2019, it was expanded from "qualified higher education expenses" to just "qualified education expenses" so that anyone can save for:

  1. Pre-college K-12 education tuition. You can now save up to $10,000 annually for school tuition from kindergarten to 12th grade 🚸.

  2. The total cost of apprenticeship programs and trade schools βš’.

  3. Student loan repayments, limited to $10,000. You can only pay off $10,000 with the 529 plan if a student loan is more than $10,000 πŸ“‰.

  4. The total cost of college tuition πŸ‘©β€πŸŽ“πŸ‘¨β€πŸŽ“, enrolment, attendance fees, and associated costs of:

    • Mandatory textbooks and supplies πŸ“š;
    • A computer, internet access, and software needed for course work;
    • Room and board expenses, such as rent and housing costs within the limits of the "cost of attendance" figures reported by the college; and
    • Special needs equipment for students with disabilities.

As long as you use the distributions from the 529 accounts for the expenses above, they are qualified to be withdrawn tax-free. But, if you use the distribution for an unqualified expense, the earning of that distribution will be taxed according to your income tax bracket, and you will pay a 10% penalty.

How does a 529 plan work?

When you open a 529 plan, the state sponsoring the 529 plan determines the plan's rules and limits and chooses a plan manager to invest the money in a portfolio of mutual funds, stocks, or other securities that can generate returns. Depending on your risk appetite and investment goal, you can choose an investment portfolio from options provided by the plan manager. State agencies or educational institutions can also sponsor the 529 plan.

Like most investment accounts, you have to pay fees on the 529 fund management. It's a good thing to look out for a portfolio's performance and expenses when choosing a 529 plan. Unlike most investment accounts, like the 401(k) and IRA, where you have to pay taxes when withdrawing, you may have to pay taxes on the money you contribute to the 529 accounts, but don't have to pay taxes when making a withdrawal. In this sense, a 529 savings plan is similar to a Roth IRA, which helps you save money tax-free for your retirement.
And in case you'd like to know more, we suggest you check out our roth ira calculator.

Most people who understand its tax advantage use it as a college savings plan; that's why you may also refer to our 529 calculator as the 529 college savings plan calculator. Therefore, you can use the 529 savings calculator to determine how much money you would save over time by putting your college savings account into a 529 college savings plan.

Since different states have their own rules and limits for the 529 education plan they sponsor, there can be some differences in each state's 529 plan. Gladly, you don't necessarily have to invest in the state where you live or where you want your child to go to school, so it is good to look around at different plans and choose the best 529 plan which offers the most tax benefit, lower fees or better investment returns.

How to use the 529 calculator and select the best 529 plan?

Our 529 savings calculator will let you determine the cost and required contribution to save for education cost for as long as 12 years! (K-12 πŸ‘ΆπŸ˜‰)

  1. First, you need to provide current age and age at start of school of the 529 account beneficiary.

  2. Then, select the number of school years the 529 plan will pay for. For instance, if you're saving for a four-year college program, you can select 4 years. Or you can select up to 12 years if you want to start early, saving for your child's K-12 years.

  3. The calculator will compute the number of years to first school year and the required years to make deposits into the 529 plan. You can change the values to see how different scenarios work in the 529 calculator's advanced mode.

  4. Next, fill in the school program's current annual cost and cost inflation. This will help assess how the cost increases over the years.

  5. You may already have an initial investment for the 529 plan. Input the figures. If you don't, no worries, it won't stop your progress.

  6. Provide your assumed annual investment return to evaluate how the 529 fund portfolio could perform over the years. It is essential to remember that you won't always get the same investment return every year. Investment returns fluctuate up and down depending on the performance of the portfolio you've chosen, but you can be confident that using this tool will keep you on track if you use the expected average.

  7. Finally, suppose you want to compare how the 529 plan performs vs. regular investment or savings account, i.e., one subject to income tax. In that case, you can select the marginal tax bracket you belong to in advanced mode to see how it impacts the results on the savings chart πŸ“Š. The education cost annual breakdown table πŸ“‘ gives an overview of each year's cost and the required contribution needed to save for that particular year, leading up to the year that you eventually stop contributing to the 529 plan.

    If you have multiple 529 plans, you can quickly compare how they will perform in different situations and choose the best 529 plan that aligns with your goal.

If you're not sure about your marginal tax bracket, check out the IRS website to ascertain what marginal rate applies to your income level. In actuality, taxes in a savings account are calculated cumulatively with your total income for a year, which may differ from the estimated value provided in the savings chart πŸ“Š. For instance, if you happen to be in a 12% tax bracket, you will pay 10% on the first $9,950 of your annual income + 12% on the remaining income you've earned that is less than $40,525. You can learn more about how taxation works on the IRS website linked above.

How to calculate college savings? 529 fund example

Assuming you have a 5-year-old child and you plan to start saving for a college education. You intend to make an initial investment of $1,000 and set aside $3,000 every year in the future for a four-year degree program when they come of age. How do you know if the money you will be saving from your monthly salary will be sufficient to meet the education cost considering inflation and the rising cost of education by that time?

Let's say you want to invest the funds in a portfolio that returns 8% interest per annum. You would need to determine the number of deposits you will have to make leading up to the child's first year of college at the age of 18 and the cost of college in their final college year to ascertain if you need to make extra contributions on your $250 (which is $3000/12) per month contribution. You can carry out the calculation in the following steps:

Step 1: Determine the number of investment years you will be saving for

Current age = 5 years

Age to start college = 18 years

Years to first college year (freshman) = Age to start college - Current age = 18 – 5 = 13 years

Number of college years = 4

Years to make deposits in the 529 plan = Years to start first school year + Number of school years = 13 + 4 = 17 years

Next, you will need to know the current annual cost of a college program and its cost inflation rate.

Current annual cost of college at a preferred college equals $12,000.

Note: the current annual cost (in this case, $12,000) is what you would pay today for a college year. But since prices tend to increase with inflation, you need to account for the possibility that college costs might go up.

Cost inflation = 4% = 0.04

Initial investment = $1000

Expected annual investment return = 8% = 0.08

Step 2: Calculate the total college cost for the four years the child will be in college

Adapting the future value of annuities formula to calculate the total college cost:

Future Value=(Present ValueΓ—((1+I)number of periodsβˆ’1)/I)βˆ’(Present ValueΓ—((1+I)number of periodsβˆ’1)/I)\text {Future Value} = \text {(Present Value} \times (( 1 + \text I )^\text {number of periods} - 1 ) / \text I) - \text{(Present Value} \times (( 1 + \text I )^{\rm number\ of\ periods}- 1 ) / \text I)


Total college cost = Total college cost until the last contribution year - Total cost until the first college year

Total college cost=(current costΓ—(1+inflation)num of yrs to depositβˆ’1)/inflation β€“ (current costΓ—((1+inflation)num of yrs to start first yrβˆ’1)/inflation)\footnotesize \begin{split} & \text {Total college cost} = \text{(current cost} \\ & \times (1 + \text {inflation})^{\text{num of yrs to deposit}} - 1) \\ & / \text {inflation}\ –\ (\text{current cost} \times \\ & ((1 + \text {inflation})^{\text{num of yrs to start first yr}} -\\ &1) / \text {inflation}) \end{split}

Total college cost=(12,000Γ—((1+0.04)17βˆ’1)/0.04) β€“ (12,000Γ—((1+0.04)13βˆ’1)/0.04)\text{Total college cost} = (12,000 \times ((1 + 0.04)^{17} - 1) / 0.04)\ –\ (12,000 \times ((1 + 0.04)^{13} - 1) / 0.04)

Total college cost=$284,370.15 β€“ $199,522.05=$84,848.10\text{Total college cost} = \$284,370.15 \ – \ \$199,522.05 = \$84,848.10

Step 3: Calculate the cost for each college year to determine the contribution needed per year

Adapting the future value (FV) formula on the current cost of college:

Future Value=Present ValueΓ—(1+I)number of periods\text{Future Value} = \text{Present Value} \times ( 1 + I )^{\text{number of periods}}


Cost year n=current costΓ—(1+inflation)Years until nth college year\small \begin{split} & \text{Cost year n} = \text {current cost} \\ & \times (1 + \text{inflation})^{\text{Years until n}^\text{th} \text { college year}} \end{split}

Cost year one=12,000Γ—(1+0.04)13=$19,980.88\text{Cost year one} = 12,000 \times (1 + 0.04)^{13} = \$19,980.88

For the subsequent years:

Cost year two=12,000Γ—(1+0.04)14=$20,780.12\text{Cost year two} = 12,000 \times (1 + 0.04)^{14} = \$20,780.12

Cost year three=12,000Γ—(1+0.04)15=$21,611.32\text{Cost year three} = 12,000 \times (1 + 0.04)^{15} = \$21,611.32

Cost year four=12,000Γ—(1+0.04)16=$22,475.77\text{Cost year four} = 12,000 \times (1 + 0.04)^{16} = \$22,475.77

Step 4: Find out how much is required to save for each year per month

For the n-th year;

Required contribution year n=(Cost year nβˆ’(initial investmentΓ—(1+interest per month)total number of months))/(((1+interest per month)Years to nth year+1βˆ’1)/interest per month)\scriptsize \begin{split} & \text {Required contribution year n} = \\ & (\text{Cost year n} - (\text {initial investment} \\ & \times (1 + \text{interest per month})^{\text{total number of months}})) \\ & / (( (1 + \text{interest per month})^{\text{Years to n}^{\text{th}} \text{ year} + 1} - 1 ) \\ & / \text{interest per month}) \end{split}

Interest per month=annual interest per annum/12\text{Interest per month} = \text{annual interest per annum} / 12

Interest per month=8%/12=0.67%=0.0067\text{Interest per month} = 8\% / 12 = 0.67\% = 0.0067

Total number of months=Years to make depositΓ—12\text{Total number of months} = \text{Years to make deposit} \times 12

Total number of months=17Γ—12=204 months\text{Total number of months} = 17 \times 12 = 204\text{ months}


Required contribution year one=(19,980.88βˆ’(1,000Γ—(1+0.0067)204))(((1+0.0067)13+1βˆ’1)/0.0067)\scriptsize \begin{split} \text {Required contribution year one} &= \\ \frac {(19,980.88 - (1,000 \times (1 + 0.0067)^{204}))} {(( (1 + 0.0067)^{13 + 1} - 1 ) / 0.0067)} \end{split}

For the subsequent years:

Required contribution year two=(20780.12βˆ’(1,000Γ—(1+0.0067)204))(((1+0.0067)13+2βˆ’1)/0.0067)\scriptsize \begin{split} \text {Required contribution year two} &= \\ \frac {(20780.12 - (1,000 \times (1 + 0.0067)^{204}))} {(( (1 + 0.0067)^{13 + 2} - 1 ) / 0.0067)} \end{split}
Required contribution year three=(21,611.32βˆ’(1,000Γ—(1+0.0067)204))(((1+0.0067)13+3βˆ’1)/0.0067)\scriptsize \begin{split} \text {Required contribution year three} &= \\ \frac {(21,611.32 - (1,000 \times (1 + 0.0067)^{204}))} {(( (1 + 0.0067)^{13 + 3} - 1 ) / 0.0067)} \end{split}
Required contribution year four=(22,475.77βˆ’(1,000Γ—(1+0.0067)204))(((1+0.0067)13+4βˆ’1)/0.0067)\scriptsize \begin{split} \text {Required contribution year four} &= \\ \frac {(22,475.77 - (1,000 \times (1 + 0.0067)^{204}))} {(( (1 + 0.0067)^{13 + 4} - 1 ) / 0.0067)} \end{split}
Total required contribution=$52.28+$48.84+$45.80+$43.07=$189.98 monthly\scriptsize \begin{split} & \text {Total required contribution} =\\ & \$52.28 + \$48.84 + \$45.80 + \$43.07 \\ & = \$189.98 \text{ monthly} \end{split}

Since you only need to contribute $189.98 per month, it means that the $3,000 you intend to set aside annually will be more than sufficient to meet the college cost, offering an extra $60.02 per month to the required deposits.

You can avoid making a huge payment or taking a loan that will accrue huge compounding interest to pay for your child's education in the future by using the 529 plan. But, carrying out all the steps to arrive at the exact figure you need to save can be tiresome, which is why the 529 college saving calculator is a fantastic tool to help you figure things out in seconds. Interestingly, unlike other college fund calculators that determine how to calculate college savings without accounting for withdrawals from the savings account, this 529 calculator accounts for the fact that you will be taking out annual distributions to pay for education costs each year.

If you put the same amount of money into a standard investment or regular savings account with the same return on investment, you would have to pay taxes on any money you make on the investment. Assuming that you belong to the lowest tax bracket and only pay a 10% income tax, the amount you would accumulate in a taxable account in the same number of years is around $79,555, which is about 7% less than the calculated savings goal. And the higher your tax bracket, the more you pay in taxes, the less money you will have in a taxable account after paying your taxes.


What is a 529 account?

A 529 account is a savings account under the authorized 529 plan that allows you to save and grow your investment towards paying for education tax-free.

Are 529 contributions tax-deductible?

No. Contributions to investment accounts are tax-deductible if you have to pay tax on them at withdrawal, but you fund the 529 accounts with after-tax money, so you don't pay tax when withdrawing from the account. However, some states may offer the benefit to deduct your 529 contributions from your taxable income.

Is room and board qualified education expense?

Yes. Room and board expenses within the limits of the "cost of attendance" figures reported by a 529 participating college are qualified education expenses.

How to open a 529 plan?

To open a 529 plan:

  1. Research the available 529 plans.

  2. Select the best 529 plan, which offers the most benefits in returns, less fund management fees, and penalties if you ever decide to opt-out.

  3. Enroll in a 529 plan and complete the application process. Make sure you ask questions to clarify anything you're unsure of.

  4. Fund the account and choose your preferred investment option.

  5. Monitor and adjust the performance of your 529 accounts.

How much money should I invest in a 529 plan?

In 2020, the average 529 plan balance was $25,664, which was an all-time high, and the trend shows growth almost every year for the past decade. However, only 13% of American families with a freshman entering college in 2017 used a 529 college savings plan to help pay for their child's education. Only about one-third of Americans even know that a 529 plan is an available educational savings tool. So, the first step is educating yourself on what a 529 plan is (which you are doing right now - so great job!) and checking out our 529 plan calculator to get an idea of what you could save. Keep in mind that you can use the 529 calculator as a 529 college fund calculator as well.

The amount you invest is up to you, as most states have minimum initial investment requirements. However, because growth is exponential, the more you can set away early on (and be consistent with annual payments!), the higher your overall return on your investment will be. Play around with our 529 calculator to see how an early start can affect your overall savings. It is also interesting to compare this with our student loan payment calculator, which shows how much extra you may have to pay if you have to take out a loan with interest to pay for college.

Is there any reason I shouldn't start a 529 college savings plan?

Suppose you decide to take the funds out of the account for any reason other than paying for educational expenses. In that case, the 10% IRS penalty applied to the withdrawal can be a giant downside, in addition to standard federal and state taxes. Exceptions apply if the beneficiary receives a scholarship that covers their educational expenses, becomes disabled, or dies. You also would have the option to transfer the money to a different beneficiary who will use the money for educational purposes.

A 529 college savings plan works through investment and grows over time; therefore, it is also essential to open the 529 college savings account early on to give it time to grow. If you are saving for your child's education and feel confident that they will attend higher education in some form, it is a worthwhile investment if you start early on.

Remember, while the 529 calculator is vital in determining the amount of money you could save setting up a 529 college savings plan, make sure you check the details for your state's and other states' 529 plans to decide on the best 529 plan for you.

Carolyn Kovacs and Oghenekaro Elem
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529 plan details
Current age
Age at start of school
Number of school years
Current annual cost
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Annual investment return
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