How much should I save for college?

Each family makes a personal decision about how much of their child’s education to fund; they may save enough to fund a portion of college expenses (with the remainder covered by financial aid and student income) or they may intend on covering the entire cost of education. When developing a savings plan, there are several important factors to keep in mind:

  1. The cost of college education has historically increased significantly more than inflation over the past years and we project that trend to continue. Based on data from the College Board, Wealthfront estimates college costs will continue increasing at a rate of 4.2% per year over the foreseeable future. That means that an expensive private college that costs $65,000 per year in 2016 is projected to cost more than double that amount - approximately $136,000 per year - in 18 years.
  2. The earlier a family starts saving and the more they contribute, the more they typically benefit from a 529 account’s tax-free compound growth. A substantial initial contribution and regular, recurring deposits can increase the benefit of a 529 account. For families that have sufficient resources, they may consider funding multiple year’s worth of tax-exempt gifts using a special 529 account feature that permits so-called "superfunding". Using this approach, two parents can contribute up to $140,000 per child using the maximum 5 years’ worth of exempt gifts ($14,000 annual gift tax exclusion X 2 parents X 5 years).
Was this article helpful?

For more information about the Wealthfront 529 College Savings Plan (the “Plan”), download the Plan Description and Participation Agreement or request one by calling
844-995-8437 or emailing Investment objectives, risks, charges, expenses, and other important information are included in the Plan Description and Participation Agreement; please read and consider it carefully before investing. An investment in the Plan is not insured or guaranteed by the FDIC or any federal or state government or agency. You could lose all or portion of your investment. Wealthfront Brokerage Corporation serves as the distributor and the underwriter of the Plan.

Before you invest, consider whether your or the beneficiary’s home state offers any state tax or other state benefits such as financial aid, scholarship funds, and protection from creditors that are only available for investments in that state’s qualified tuition program

The Plan is administered by the Board of Trustees of the College Savings Plans of Nevada (the “Board”), chaired by the Nevada State Treasurer. Ascensus Broker Dealer Services, Inc. (“ABD”) serves as the Program Manager.

Earnings on nonqualified withdrawals are subject to federal income tax and may be subject to a 10 percent federal tax penalty, as well as state and local income taxes. The availability of tax and other benefits may be contingent on meeting other requirements.

The information contained is provided for general informational purposes, and should not be construed as investment advice. Nothing should be construed as tax advice, solicitation or offer, or recommendation, to buy or sell any security. Financial advisory services are only provided to investors who become Wealthfront clients. This article is not intended as tax advice, and Wealthfront does not represent in any manner that the tax consequences described here will be obtained or will result in any particular tax consequence.