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529 Calculator

Personal finance calculators

What is 529?

A 529 plan, also known as a "qualified tuition plan," is a specialized savings and investment plan designed to help families save and pay for future education expenses. This savings plan was named after Section 529 of the Internal Revenue Code, which legally authorized its creation in 1996.

There are two primary types of 529 plans:

  1. Education savings plans: These usually involve investing in different kinds of financial products and can be withdrawn to pay for education-related costs.

  2. Prepaid tuition plans: With this plan, you can prepay all or part of a participating college or university tuition costs at the current price for future enrollment.

The main advantage of a 529 plan is that, when used for qualifying educational expenses, both the invested money and any investment returns can be withdrawn without incurring federal taxes.

How to Use a 529 Calculator

A 529 calculator is a tool that helps you visualize and calculate how much you need to contribute monthly or yearly to a 529 plan over a specific period to cover the projected cost of education.

Using this tool requires you to input specific parameters such as:

  1. The current age and age at the start of school of the beneficiary

  2. The number of school years the 529 plan will fund

  3. The current annual cost of the anticipated educational program and cost inflation

  4. Your initial investment for the 529 plan

  5. Your expected annual investment return

An advanced mode in the calculator might include the tax bracket, which could affect the total savings significantly.

An Actual Example to Demonstrate the Calculator

Let's assume you have a 5-year-old child for whom you want to start saving for a 4-year college education program. You intend to make an initial investment of $1,000 and plan to set aside $3,000 every year for the upcoming years.

You use the following values:

  1. Current age of child: 5 years

  2. Age at start of university: 18 years

  3. School years to pay for: 4 years

  4. Current annual cost of the program: $20,000

  5. Expected annual cost inflation: 3%

  6. Initial investment for the plan: $1,000

  7. Expected annual investment return: 7%

Based on these inputs, the calculator will estimate the potential value of your 529 plan when your child is ready to begin their tertiary education. It also computes the required monthly contribution to reach the desired goal.

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