Realistically, parents who welcome a little new tax exemption this year will need about $500,000 for his or her four-year private-college education.
Yeah. Good luck with that.
Only half of all families with children under 18 save any money at all for college (down from 62 percent in 2009), but among that group, total college savings are up a whopping 30 percent from last year to $15,346, according to a Sallie Mae study released Thursday.
High-income families, unsurprisingly, have the highest level of college savings, at an average of $27,446, which is up 39 percent from last year. Middle-income clans have saved an average of $12,241, up 29 percent. But low-income families are struggling at an average of $3,792, down 26 percent from last year.
Mark Kantrowitz, the senior vice president and publisher of Edvisors.com, who came up with the half-mil college hit prediction, says that parents often underestimate the future cost of college.
Kantrowitz says that it’s OK to only save about a third of the projected college cost (though if you can afford it, more will make it easier on your children down the road), as you can assume that you can pull the rest from your current income, financial aid and loans when the time comes.
By far the most popular college-savings vehicle is the general savings account, but financial planner Kimberly Foss says the 529 plan is superior. “There aren’t many reasons not to use it,” she said, pointing out that 529 plan investments grow tax-deferred and distributions come out tax-free on the federal level; plus most states (including New York and New Jersey) offer state income-tax deductions, so there’s a “double tax advantage” in these cases.