How Much Should You Save for College? SMART529 Can Help Show You the Way

Savings for a future college education is a great advantage for a child. So is potentially growing that savings with SMART529. No matter what your child’s age or anticipated date of college enrollment, the sooner you start saving, the better. But first, take into consideration your own needs.

You should have some savings for your retirement and a fund to cover six-months’ worth of expenses in case of an emergency. Once you’re financially stable in those areas, saving for your child’s education should be your next priority.

The one thing you can be sure of is that college tuition and fees will not decrease by the time your child heads off to school. But this doesn’t mean that you can’t make a significant impact in helping to pay for college. A little can go a long way with a SMART529 plan, especially if you open your account when your child is young. But even if your child is just a few years out from that first fall semester, saving for college in advance can help.

How Much is Enough for College?

Remember, it’s your child’s college education, not yours. You don’t have to pay for everything, but helping your child pay for an education is a great gift. In addition, there are plenty of extra ways that the future student can help pay for college (scholarships, grants, federal/state aid, student loans, paying jobs, internships, etc.). Depending on what you and your child envision for his or her future, your income, and your financial stability, how you choose to contribute to a 529 plan may vary. Perhaps your goal is to save for a public four-year, in-state school. Or, on the more expensive end, maybe you are aiming to save for a private four-year education.

Keep your own goals in mind, too, when considering how much will be enough to send your child to college.

TIP: Ask your relatives to provide college fund money for children’s birthdays, holidays, etc. Slip that found-money into your 529 account on a regular basis and your investment can grow.

Keep your own goals in mind, too, when considering how much will be enough to send your child to college.

Plan for the Future

Lender Sallie Mae’s 2018 report, “How America Saves for College,”1 indicates that parents today consider saving greater amounts for college more important than parents in the past did. The average amount saved is about $18,000, according to the report. But when you consider that for the 2017-2018 school year, the average private college charged more than $46,000, your $18,000 may start to feel small.2

It’s important to be realistic about your college-savings goals. Save what you can for what you anticipate your child’s education needs will be. Start as soon as possible because more savings now can translate to fewer student loans later. Additionally, one of the best features of a 529 plan is compound interest. The interest is calculated on the amount you initially invest and the accumulated interest from previous years.

Save early, regularly, and often. You can do this easily by setting up automatic savings with your SMART529 account. There are two options: Payroll Direct Deposit and the Automatic Investment Program.

For example, if you invest $200 per month from the time your child is born until the day she turns 18, you will have accumulated more than $77,000, assuming a 6% rate of return. Comparatively, if you begin investing $400 monthly beginning when your child is 10 years old, you will have amassed about $49,000. Investment returns are not guaranteed, and you could lose money by investing in a 529 Plan.


Less Can Be More if You Start Early On

This hypothetical illustration is not intended to reflect the performance of the any particular 529 plan or its investment options, whose actual rates of return will fluctuate.

On Your Mark: Save!

There’s no better time than now to establish your SMART529 account. There’s no minimum initial investment, no minimum on subsequent investments, no application fees at enrollment, and no sales charges, so 100% of your investment goes to work immediately.

Getting Started >

Is Financial Aid Available?

Probably, but you won’t know unless you do some research and urge your child to apply for it when the time comes. The most important thing to remember is that in most cases, your 529 plan will have a minimal effect on the amount of aid that your child is eligible to receive.

The largest federal grant program is the Pell Grant, which assists students from low-income households. Pell Grants help millions of low-income students pay for college. Pell Grants are not loans and they don’t have to be paid back. They’re essentially free money!

All schools that offer federal need-based financial aid require a completed Free Application for Federal Student Aid (FAFSA). Eligibility for financial aid is based on the student’s financial need, which is the difference between the college’s Cost of Attendance (COA) and the student’s Expected Family Contribution (EFC).

There are many sources to help determine eligibility for financial aid, scholarships, grants, etc., including the high school guidance counselor, online research, and advice from the college’s admissions officer or your financial planner.

Is SMART529 the Only Option?

No, but it’s certainly one of the best ways to save for college. When you make withdrawals from your SMART529 for qualified higher education expenses, they’re free from federal income tax as well as West Virginia personal income tax. Non-qualified withdrawals are taxable as ordinary income to the extent of earnings and may also be subject to a 10% federal income tax penalty.

These qualified education expenses include: tuition, fees, room and board, books, computers, and related equipment and supplies required for attendance. Effective January 1, 2018, as part of the Tax Cuts and Jobs Act, up to $10,000 per student can also be withdrawn annually to pay for private K-12 education.4

Other ways to save include transaction accounts such as a savings account or CD (Certificate of Deposit). Review our College Savings Choices chart to get an idea of what’s available. Be sure to do your homework on saving for college as some accounts and devices can have a negative impact on eligibility for financial aid.

“College Savings Choices” chart >

What’s the Bottom Line on Saving for College?

Still not sure what you can afford to save for higher ed? You’ll find much more information about SMART529 throughout this site, but to calculate potential costs, take a look at our College Savings Planner. It will help you project future college costs, what the expected family contribution is, and ways to determine how much to save for your child’s college education.

College Savings Planner >


2“Trends in College Pricing 2017” – survey conducted by The College Board

3U.S.News, “10 Facts to Know About the Pell Grant,” 7/3/18

4Qualified-expense status varies by state for withdrawals used for K-12 education.