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How to Set a College 529 Savings Goal

So you have a 529 plan for you kid’s education, or at least you are considering starting one. Now the question often is what an appropriate college 529 savings goal actually is.

This can be a difficult question to answer because there are so many variables that are unique to your specific situation. Depending on the age of your children, you may be attempting to project financial need two decades into the future! A lot can change and a lot of unexpected events will happen between now and then.

What 529 savings goal should I have?

Finding appropriate 529 goals involve the same steps as setting any financial goal. You need to determine what you want, evaluate where you are, set milestones that get you there, and track your progress toward the goal.

The first thing to do is decide what you want. Some basic questions to ask yourself are:

  • What type of school are you saving for?
  • What percentage of their education do you want to pay for?
  • How comfortable are you with the risk of overfunding the 529?

Let’s go over each of these questions in a bit more detail.

What Do You Want to Pay For

What type of school are you saving for?

Are you looking to help your child go away to school or will they be staying local? If the child is going away to college you should include room and board in your calculation. If your child is going far away you will need to consider the added cost of out of state tuition.

Is the child going to a public or private college? The tuition rates can vary dramatically here. You will need to consider which type of institution you want the child to go to. You can go to any school’s website and pull their cost of attendance. Make sure room and board is included if your child is going off to college.

Also consider how long your child will be in school. Four years is pretty standard but trade schools can take much less time and graduate degrees much more.

Once you know what type of institution you are saving for, you should be able to determine an annual cost of attendance with tuition, supplies and possible room and board accounted for. Write this number down.

What percentage of their education do you want to pay

There are a few factors to consider here. Do you want to cover 100% of the cost? Do you want your child to have some skin in the game? Will they work while in school? Will they take out student loans to cover part of their education? Should they qualify for scholarships?

If you want to be very conservative you might aim for 100% coverage of the costs. This is often unnecessary as many children will qualify for partial scholarships and can work part time when in college without jeopardizing their education.

Also consider that having some skin in the game helps to make sure that your child appreciates the educational opportunity and will work hard to take advantage of it. If you are fronting the entire bill they will have nothing to lose and may not try as hard.

What if you overfund the 529?

A child might decide not to go to college or could acquire a full scholarship leaving you with an overfunded 529. You can always use unneeded funds for one child to pay for another child or grandchild’s education. You could also use it on yourself!

If you really end up with a surplus of funds you can take a non-qualified distribution. This means you will have to pay income tax and a 10% penalty on your capital gains only. It is very unlikely you run into this problem though, so don’t overthink it.

What if you underfund the 529?

If you end up underfunding your child’s 529 you still have several options at your disposal to ensure your kid gets the education you want.

You may choose a less expensive school option. Rather than private or out of state you may choose a public institution closer to home. This could dramatically reduce the total cost.

Student loans can also be an effective safety net if you end up below the total needs when the time comes. You can always help your child pay them off if you have concerns. Their are also parent loans available as well.

You can choose to pay more out of pocket while your child is in school. This can work fine if you are in a position for it. However, you must be careful not to skip more important financial goals like saving for retirement. You can borrow money to fund education but you cannot borrow for retirement. Save for retirement first!

How much should I save in the 529?

Now that you have thought through everything you might be asking what an appropriate goal is. Many recommend planning to save 50% of your child’s projected college cost by the time they start. The remaining 50-70% is covered by scholarships, part-time work, out of pocket payments and student loans.

You can use the Vangaurd college cost predictor to estimate how much the total cost of your child’s education will be. The percentage you choose to save can be multiplied by this amount for your goal.

After defining your savings goal you only need to plug the value into a savings calculator to determine the appropriate monthly savings rate so you are prepared by the time your child needs it.

Set Annual Milestones

Having a goal isn’t much help if you don’t know how to get there. Now that you know what you want to save, you need to set up annual savings milestones that get you to your goal by the date you need.

Check a simple savings calculator to help with this. Depending on how you are investing your principal make sure to set the correct APY. Tweak the numbers until you hit your goal on time.

Track Your Progress

Now that you have your milestones setting up automatic monthly deposits into the 529 is probably your best bet. This will make sure you never forget to save for your goal.

This isn’t enough however, as the rates of return you see on the investments in the 529 may not match expectations. Using a tool like Dollartrak you can set your goals and have it track your progress over time. Make sure to make adjustments in your savings plan that keep you on track to achieve it.


A properly funded college 529 plan can be one of the most valuable financial assets at your disposal. Make sure that you define what your contributions will be to your child’s education and are comfortable that you can meet the obligation when the time comes.

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