Should I keep contributing to my daughter's 529 plan, or should I leave it alone and let it grown until she is ready to go to college?
My child is three years old and has $15,000 in the 529 plan.
Typically, I would recommend continuing contributions as long as it is not a hinderance to the contributors financial well being. Also, the 10 year average for increase in tuition rates is 5% annually and the average tution rates for the 2016-2017 school year are the following:
- $33,480 at private colleges or $69,602.52 for the 2031-2032 school year
- $9,650 for state residents at public colleges or $20,061.66 for the 2031-2032 school year
- $24,930 for out-of-state residents attending public universities or $51,827.68 for the 2031-2032 school year
Below your will find estimated ending market value when your daughter turns 18 for 3 different scenarios
- 5% return compounded annually on a starting value of $15,000 over 15 years with no further contributions is $31,705.56
- 5% return compounded annually on a starting value of $15,000 over 15 years with annual contributions in the amount of $1,000 is $53,841.41
- 5% return compounded annually on a starting value of $15,000 over 15 years with annual contributions in the amount of $5,000 is $144,471.38
This is a personal decision. Consider, though, that the cost of a 4-year public school is around $25,000 per year and by the time your child goes to college in 15 years that number could be as high as $50,000 per year. That's the case for continuing your contributions to the plan.
There are some drawbacks, however. If you child decides not to go to college or goes to a community college or other less-expensive route, you would have a large amount of money built up and would be unable to use all of it on your child's education. That's not the worst thing in the world - you won't have to pay penalties or taxes on the amount of the contributions, and on the gains in the account you will have to pay taxes and a penalty if you were to withdraw that money for non-education expenses.
One thing to note is that you can always change the beneficiary on 529 plans. So if you decide to have more children you can change the beneficiary to them. Some people keep the accounts for their grandchildren. You can even change the beneficiary to yourself if you wanted to go back to school for any reason.
If you are able to contribute to a Roth IRA in addition to your retirement account at work, you might consider redirecting your contributions to the Roth IRA. With a Roth, you can take withdrawals to pay for eduation without paying penalties (although you would have to pay taxes on the gains if you are under 59.5 years old when your child went to school).
I hope that helps. Great work establishing an education fund for your child!
You should always contribute if you're able. Key word is able. You should prioritize your own emergency savings, paying off high interest rate debt, and retirement account prior to making college savings contributions. If you are having any problems in those higher priorities, work on those, and come back to the college savings later. Also remember that anyone can contribute to a college savings account. Hand out addressed, postage paid envelopes to close family at birthdays and holidays and shamelessly encourage them to make contributions too. Any little bit helps!
This is a great question and depends on what you are looking to accomplish.
The previous answer has done a great job of giving you an overview of what your potential costs and growth could be over time. The true answer depends on what you want to plan on funding for your daughter, as this is not an exact science. You should first try and determine if you want to try and cover all or part of your daughters college costs. Next you have to figure if you are going to do this for a private or public school. Finally you want to determine what the costs will be for the portion you are looking to assist with and back into the amount you need to save over time.
This will put you in a position to determine if this initial amount alone will be enough or if you will need to continue to make contributions. Keep in mind, any monies not used for your daughter could be used for other family members (even grandcildren) down the road if needed.
I would recommend you meet with a fiduciary advisor and develop n education funding analysis that will help you answer and monitor this going forward.
Good luck and congratulations on starting to save early for your daughters education.
You should run a college net price calculator to determine the amount you need to save to pay your EFC (Expected Family Contribution). Every college has a net-price calculator on their website and you can find generic calculators online.