College & 529 Savings Calculator

• Projects cost year by year of study, with education-specific inflation rather than general inflation.
• Models the account continuing to grow while it is being drawn down.
• Solves for the monthly contribution that closes the funding gap.
• State tax benefits are user-entered. No figure is assumed, because there is no national answer.

How the projection works

The calculation runs in three stages.

1. Project the cost. Today's annual cost is inflated at the education inflation rate for each year until college starts, and then for each year of study. Any assumed grant or scholarship percentage is deducted to give a net cost.

cost in year k = today's cost × (1 + education inflation)^(years until college + k)
net cost       = cost × (1 − assumed aid %)

2. Project the savings. Current savings plus monthly contributions grow at your expected return until the first year of study.

3. Draw it down. The balance keeps earning during the years of study while bills are paid from it. That matters: a four-year drawdown on a balance still earning 6% covers noticeably more than a simple division would suggest.

If a gap remains, the calculator solves for the monthly contribution that would close it, by bisection on the contribution amount.

Education inflation, and a caution about it

Published college costs have historically risen faster than general inflation, which is why this calculator defaults to a higher rate than it would for a general purchase.

Two important caveats, though. First, sticker price and net price have diverged: institutional grant aid has grown substantially at many schools, so what families actually pay has behaved differently from published tuition. Second, the rate of increase has varied considerably by period and by institution type, and public and private institutions have followed different paths.

The practical response is to set the assumption deliberately rather than accepting a default. Run the calculator at 3%, 4% and 5% and see how much the answer moves. If the plan works at the higher figure, it is robust; if it only works at the lower one, you are relying on the assumption. And set the assumed-aid percentage thoughtfully, because for many families it is the largest single adjustment to the number.

How a 529 plan works

A 529 is a state-sponsored savings account for education. Contributions are made with after-tax money — there is no federal deduction — but the account grows free of federal tax and withdrawals are tax-free when used for qualified education expenses.

Qualified expenses generally include tuition, fees, books, required equipment, and room and board for students enrolled at least half-time. The definition has been broadened over time to include limited amounts of K-12 tuition, apprenticeship programme costs, and student loan repayment up to a lifetime limit, with rules also permitting rollovers to a Roth IRA under specific conditions. Not every state conforms to every federal expansion, so a withdrawal that is federally qualified may still be taxable at state level.

Non-qualified withdrawals are taxed on the earnings portion, plus a 10% federal penalty on those earnings. Your original contributions come back without tax or penalty in any case. The penalty is also waived in certain circumstances, including when the beneficiary receives a scholarship — up to the amount of the scholarship, though income tax on the earnings still applies.

The beneficiary can be changed to another qualifying family member, which substantially reduces the risk of over-saving. Unused funds can move to a sibling, or in some circumstances to yourself.

Investment options are typically limited to a menu the plan offers, commonly including age-based portfolios that shift towards bonds as college approaches. That glide path is why the expected return in later years is usually lower than in the early years — a nuance this calculator does not model, so consider using a blended figure rather than an equity-like return throughout.

State tax benefits: why nothing is assumed here

Most, but not all, states with an income tax offer some deduction or credit for 529 contributions. Beyond that generalisation, almost everything differs:

• The amount. Deduction caps range from modest to substantial, and a few states offer credits rather than deductions.
• Whether the in-state plan is required. Many states only grant the benefit for contributions to their own plan. Some grant it regardless of which state's plan you use.
• Per contributor or per beneficiary. This changes the effective cap for a couple.
• Carryforward. Some states let unused deduction amounts carry to future years.
• States with no income tax on wages offer no such benefit, because there is nothing to deduct against.

Given that variation, publishing a table here would be a table that was wrong for most readers and would go stale quickly. The state benefit fields under Advanced are therefore blank by default. Look up your own state's current rules — your state's 529 plan website and your state's department of revenue both publish them — and enter the figures. The calculator then applies them and includes the benefit in the comparison against a taxable account.

One practical note: if your state offers no benefit, or grants it regardless of plan, you are free to choose any state's plan. Plans differ meaningfully in fees and investment options, and low-cost plans are open to residents of any state.

Where college saving sits in the order of priorities

This is the section most college savings calculators leave out, and it is arguably the most important.

There are loans, grants, scholarships and payment plans for education. There are none for retirement. A parent who underfunds retirement to fully fund college may find themselves financially dependent on the same child twenty years later — which is a worse outcome for everyone than that child taking on some manageable debt.

A defensible ordering for most households:

1. Employer retirement match — an immediate return nothing else matches.
2. High-interest debt.
3. An emergency fund.
4. Retirement saving at a rate that keeps you on track.
5. College saving with what remains.

There is also a financial aid consideration. Aid formulas assess different assets at different rates, and retirement accounts are generally treated more favourably than taxable savings. A 529 owned by a parent is typically assessed at a lower rate than one owned by the student. These rules are detailed, they change, and they are worth checking against current guidance rather than remembered advice — but the general direction is that retirement saving is not penalised in the way other assets are.

Common mistakes

Planning against the sticker price. Most families pay less. Setting the assumed-aid percentage to zero produces a target that may be much larger than necessary and can discourage starting at all.

Underfunding retirement to fund college. Covered above.

Assuming your state gives a benefit. Several give nothing, and several only for the in-state plan. Check before choosing a plan on that basis.

Ignoring plan fees. Plans vary in cost, and fees compound over eighteen years. If your state offers no tax benefit, you can choose any state's plan — compare the expense ratios.

Being too aggressive close to enrolment. A portfolio that is heavily in equities the year before the first tuition bill is exposed to exactly the wrong risk at the wrong moment. Age-based portfolios exist for this reason.

Starting late because the number looks impossible. The compounding works hardest in the early years. A modest contribution started when a child is two does more than a large one started at twelve.

Frequently asked questions