Saving for College: What $200 a Month Grows To by Age 18

Projection Table

The table shows the value at age 18 under a 6% annual return (a moderate, long-term assumption for a mixed portfolio) with monthly contributions. In practice, returns vary from year to year, and portfolios often shift to lower-risk assets as the child approaches college age.

How 529 Plans Work

In the United States, a 529 plan is a tax-advantaged account for education savings. Contributions grow tax-deferred, and withdrawals are tax-free if used for qualified education expenses, which include tuition, fees, books, and in many cases room and board, K-12 tuition up to a limit, and certain apprenticeship and student loan repayments. Many states offer a tax deduction or credit for contributions. Plans offer age-based portfolios that gradually become more conservative as enrollment nears.

If the beneficiary does not use all the funds, you can change the beneficiary to another family member, and recent rules allow limited rollovers to a Roth IRA under conditions. Non-qualified withdrawals may incur income tax and a penalty on the earnings. Rules change, so check the current ones.

How Much Should You Aim For?

The cost of college varies enormously. A public in-state university may cost $25,000 to $30,000 a year in total expenses, and private universities $60,000 to $90,000 or more. Four years can range from about $100,000 to over $300,000. Few families save the entire amount. Many aim to cover one third to one half of the expected cost, with the rest coming from current income, financial aid, scholarships, work, and a manageable amount of loans.

Costs have risen faster than general inflation for decades, so projections should include price increases. Use the college costs for the year your child will enroll, not today's price.

Making Saving Easier

Automate monthly contributions from your paycheck or bank account. Ask relatives to contribute to the account for birthdays and holidays, as many plans offer gifting links. Increase contributions with each raise. Prioritize your own retirement first, since students can borrow for college but you cannot borrow for retirement. A balanced approach protects both goals.

Financial Aid Considerations

Parent-owned 529 accounts are treated favorably in federal financial aid formulas, counting at a low percentage of assets, whereas assets owned by the student count more heavily. Rules change, so consult the college's financial aid office. Scholarships and grants reduce the amount you need, and some plans allow penalty-free withdrawals up to the amount of a scholarship.