Planning for your child’s college education can feel overwhelming, especially when faced with skyrocketing tuition costs and countless savings options. This week, we’re discussing the question of exactly how much you should save in a 529 plan.
Understanding Your College Savings Goals
Before crunching numbers, it’s vital to get clear on your goals. Parents often have differing expectations: Do you want to cover the full cost of your child’s college, just a portion, or expect them to contribute alongside you? Your answer will shape not only how much you need to save but also the path you take to get there.
Statistics show the value of a college education remains high. According to J.P. Morgan College Planning Essentials, the average college graduate earns about $40,000 more per year than someone with only a high school diploma, which means significantly higher lifetime earnings. However, college isn’t cheap, and understanding the landscape of costs is critical to realistic planning.
The Current College Cost Landscape
College costs can vary dramatically:
- In-state four-year colleges: Average around $30,000 per year (tuition, room & board).
- Private colleges: Can easily top $63,000 annually, with elite schools nearing $100,000 per year.
- Two-year programs and community colleges: Generally less expensive, but may still represent a significant investment over time.
These numbers can be daunting, but breaking them down helps families strategize about what’s actually feasible—and what they want to prioritize.
Why Consider a 529 Plan?
With so many ways to save, why opt for a 529 college savings plan? Here are several advantages:
- Tax Benefits: 529 contributions grow tax-free, and qualified withdrawals for education expenses are also tax-free.
- State Incentives: Some states (though not all) offer tax deductions for contributions.
- Control and Flexibility: The account owner controls investments, disbursements, and recipient changes.
- New Rules and Uses: Recent legislation lets unused funds (up to $35,000) roll into a Roth IRA for the beneficiary and expands what counts as a qualified expense, including up to $20,000 per year for K–12 tuition beginning in 2026.
Qualified expenses include tuition, room and board, books, supplies, some student loan payments, and more.
How Much Should You Really Save?
It’s the question at the heart of every conversation: how much is enough? Our advice is that you prioritize retirement in your savings, as you can take a loan for college, but you can’t take a loan for retirement. Make sure your own future security comes first. For most, saving for about 50% of the projected college cost in a 529 is a good benchmark—assuming ongoing cash flow, potential scholarships, and possible student loans will cover the rest.
Tailor your savings to your family; over-saving can tie up money unnecessarily, but under-saving may leave you unprepared. If your student receives a scholarship, chooses not to attend college, or you’ve simply over-funded the account, 529 plans are flexible. You can change beneficiaries, carry funds forward to grandchildren, or—as a last resort—withdraw with taxes and penalties only on earnings.
Legislation Updates and Additional Resources
Recent legislation continues to add versatility to 529 plans: in addition to broader qualified expenses, the annual K–12 withdrawal limit will double from $10,000 to $20,000 in 2026. As rules shift, staying informed is crucial for maximizing your college savings strategy.
Saving for college is one of the most significant investments many families will make. By understanding your goals, leveraging powerful tools like 529 plans, and getting expert guidance, you can create a balanced strategy that secures your child’s education—and your own financial peace of mind.
Outline of This Episode
- [00:00] Decide your college funding goal before saving in a 529 account.
- [02:06] An overview of college costs.
- [02:35] Advantages of the 529 Plan.
- [03:54] Weighing college savings vs. retirement savings.
- [05:31] What happens if I save too much?
- [07:35] Expanded legislation as part of the OBBB.
Resources & People Mentioned
- The Retirement Podcast Network
- J.P. Morgan College Planning Essentials
- 529 Plans: Questions and answers
