This website has previously discussed how parents can save money in a tax-advantaged 529 account for their kids’ educational expenses. Indeed, a previous article noted how anyone can make a contribution to a 529 account, and this could be a good substitute for giving gifts to a child. Although there are many opinions on the internet about saving goals for 529s, there are a few things you should keep in mind when evaluating how much you should save in a 529 plan.
I do not have any children myself, but I have four nieces and nephews (and another one on the way!). My brothers have told me about their efforts at saving for college, and have asked that members of our family make contributions to college funds instead of providing gifts on birthdays, holidays, and other similar occasions. My brothers have told me there are a few things they have considered when evaluating how much you should save in a 529 plan.
A family’s income will have a huge impact on how much you should save in a 529 plan. Many families live mostly paycheck to paycheck, with very little money to spare on anything other than absolute essentials. If a family is struggling financially, it does not usually make sense for them to devote any significant money to 529 accounts. Although it would be extremely generous for families to make 529 contributions even if they have financial issues, this should not be seen as essential for any family that is struggling.
Families that have some financial flexibility can make more informed decisions about how much you should save in a 529 plan. For some families, it makes sense to save enough money for all of their children to attend top flight universities. As many people already know, colleges are not created equal, and some schools cost significantly more than others. If a family has a substantial amount of financial resources, it makes sense to max out 529 accounts and save enough money for all of their children to attend any college that they wish.
However, the reality is that most families will not be able to fund their 529 accounts with the hundreds of thousands of dollars needed for each kid to attend any college they want. In these circumstances, it makes sense that families should try and save enough money for their children to attend a state school. Depending on which state you live in, state schools can be very reasonable in price, and a student may be able to fund much of their college career at a state school with less than a six figure sum. When assessing how much you should save in a 529 plan, it is reasonable for parents to believe that they are morally obligated only to fully fund a modest college education, and if children wish to attend a more expensive college, they need to bear some of expense themselves.
However, the underlying reasoning that may motivate how much you should save in a 529 plan is how you will feel when your kids are approaching college age and ask about any preparations made for their education. So long as you can look at your children and tell them that you made some sacrifices to save for them over the years, you should have no guilt about not being able to fully pay for a college education. Indeed, my family was unable to provide me any assistance for college, so any help you can give your kids is a gift, and any substantial contribution to college expenses should be appreciated.
One of my brothers has told me that he wishes to save half of the cost of a state school for his kids, and this seems completely reasonable. The budget of my brother does not support saving enough money for his kids to attend any college that they wish, especially considering college costs are likely to increase in the future. However, people should feel satisfied if they can save this sum of money, since this effort should show to children that their parents made sacrifices so that they could have less of a student debt burden.
Of course, some parents never really consider how much you should save in a 529 plan, since they expect that if their kids wish to attend a school, they should earn a scholarship to pay for educational costs. In addition, college is not always appropriate for everyone, and it is possible that children may wish to forgo college in favor of a trade school or other pursuits. In such circumstances it may not make sense to hole money away in a 529 account.
However, parents should assume that their children may wish to attend college. In addition, relying on scholarship money may put children under substantial pressure, and may limit a student’s college options. As a result, parents should try and save money in a 529 account even if they do not think their children may ultimately rely on such funds to finance their degrees.
All told, there are a number of considerations that come into play when asking how much money you should save in a 529 plan. The cost of college and a family’s budget may be the most important factors to determining how much you should save. However, so long as parents can face their children and convey how they have sacrificed and saved over a number of years to pay for their college costs, parents should be satisfied with the amount they dedicate to 529 accounts.