Saving for college: How much should you put aside?

February 28 2017

It's no secret that the cost of sending a child to college is on the rise, and student debt is the highest it's ever been. But it's not all bad news when it comes to paying for post-secondary education. In fact, 72 percent of American parents are saving for their children's college fund, a record high.

How much should I save?
Of that 72 percent, parents are projected to reach only 29 percent of their overall savings goal by the time their child graduates high school. So how do you determine the amount you'll need when the time comes? There are a variety of online calculators that can help you estimate what the cost of college will be when your child reaches 18.

Which is more important: college or retirement?
Knowing how to prioritize and where to allocate your finances can be complicated. Some experts recommend amassing funds for your retirement first and then contributing to your child's college account. As one financial planner put it, "You can always borrow money for college, but you can't borrow money for retirement."

Where and how should I save?
If you have excess funds after contributing to your retirement, you might want to consider opening a 529 plan. These popular accounts include tax-free earnings, and family and friends can also add to them. A 529 plan can even be applied to nontraditional schools and programs. However, the money must be used for college-related costs. If it's not, you could owe income taxes on it and receive a penalty on the earnings. But here's some good news: If your child receives a full scholarship, the penalty can be waived.

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