It’s crazy to think about the cost of college tuition and room & board continuing to increase at the same clip.  At a 5% increase each year, four years of college in 18 years at a state school could cost upwards of $250,000.  If paying for your children’s college is part of your vision, saving early can make the expense more manageable.

Saving strategies

First, I recommend starting with a 529 account.  It can be used for tuition, room & board, books, laptop, etc.  In many states, you also receive a state income tax deduction.  For example, in Missouri, you can contribute up to $8,000/$16,000 single/married and receive an income tax deduction.  That’s essentially an immediate 6% return just for funding the account.

How much should you save for college each year?

That depends on what you want to cover.  Do you want to pay for all of an in-state school? Out of state? What about graduate school such as medical or law school?  Think about what your total future cost might be then back into the appropriate annual savings figure. 

I wouldn’t recommend funding a 529 for more than the projected in-state cost of college per child.  Any more than that and there is potential for overfunding which can lead to taxes and penalties if the fund are used for non-education purposes. 

Saving into a taxable investment account is another option, especially if you would like to pay for out of state tuition or graduate school.

Regardless of the vehicle you use to save, saving early and often will make the pill easier to swallow in the end.

WM

Weston is a Certified Public Accountant, Certified Financial Planner^TM, and holds the Chartered Financial Analyst designation. In addition, Weston earned his master’s degree in accountancy from the University of Missouri – Columbia. Weston is active in the St. Louis community and board member of the Anti-Defamation League.

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