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Wait, How Much Should I Put in My Kid's College Fund?

Photograph by Twenty20

College savings are daunting both for their complexity and their investment. A while back, I wrote about how a 529 college savings account may not be the best place to put your college savings. The response? Several of you reached out and said that was great, but that you hadn't even figured out how much to put away.

Before we crack on, keep in mind that neither I nor the staff at Mom.me are licensed financial educators. We're just a group of moms figuring this out together. Now, let's tackle how much you should be putting into your kid's college savings account.

According to the U.S. Department of Education, you'll need to set aside $200,000 to pay for four years of public college in 2030. I know there are a ton of other factors at play: scholarships, private schools, living expenses and more. Estimates are even higher if you're looking at a college start date beyond 2030. But for the sake of simplicity, let's start at $200,000.

Put away as much as you can. You'd be surprised how quickly it all adds up.

$0-Down, Annual Savings With Compound Interest

If your plan is to make a monthly or annual contribution into an investment account that earns 7 percent compound interest, you should aim to save and invest $550 a month for 18 years. In this scenario, the $118,000 that you saved over 18 years would turn into roughly $200,000 by the time your kid finishes college. If this seems daunting, given limited family budgets, you can also consider using your annual tax refund as an investment for your kids.

$5,000 Down, Annual Savings with Compound Interest

If you have some savings, you could also consider front-loading the college savings account. For instance, by adding $5,000 the year baby is born, you could reduce your monthly contributions to approximately $410 and still meet your $200,000 goal. If you can put in $10,000, then it would drop down to $380 per month.

Starting Later

If your kids are already older, you'll have to pony up a bit more to meet your savings goals. For instance, if your kids are 10, you'll have to contribute $1,125 per month to meet your goal at 7 percent.

But What If You Can't Do It?

This is a great question and it's also the exact question I asked my CPA when my son was born. Her advice: Put away as much as you can, and that is exactly what we did.

All too often, what extra money we may have after we pay our bills happens to vanish, so it's good to set a small goal—even if it's $100 to $200 a month—and move that into an interest-earning account. You'd be surprised how quickly it all adds up.

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