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Using the 529 Calculator
A 529 calculator is an essential tool for parents and guardians planning for future higher education costs. By estimating how much your current savings and monthly contributions will grow over time, you can better understand if you are on track to meet tuition goals. This calculator accounts for compound interest, which is the primary driver of growth in tax-advantaged 529 plans.
To get the most accurate projection, consider the age of your child and the estimated cost of the university they might attend. Most 529 plans invest in age-based portfolios that become more conservative as the student nears college age, which may influence your expected annual return.
- Current 529 Balance
- The amount of money already sitting in your 529 account. If you haven't opened one yet, enter 0.
- Monthly Contribution
- How much you plan to deposit into the account every month until the child starts college.
- Years until College
- The number of years remaining until the student begins their first year of higher education (typically age 18 minus current age).
- Expected Annual Return
- The average annual rate of growth you expect from your investments. Historically, many balanced portfolios aim for 5% to 7%.
How 529 Savings Growth is Calculated
The 529 calculator uses the Future Value (FV) formula for an annuity combined with the compound interest formula for the initial principal. Since contributions are typically made monthly, the interest is compounded monthly. The total balance is the sum of your initial investment growing over time plus the series of monthly payments accumulating interest.
FV = P(1 + r/n)^(nt) + PMT × [((1 + r/n)^(nt) – 1) / (r/n)]
- P: Initial Balance (Principal)
- r: Annual interest rate (decimal)
- n: Number of compounds per year (12 for monthly)
- t: Total number of years
- PMT: Monthly contribution amount
529 Calculation Example
Scenario: A family has a 5-year-old child and wants to start a 529 plan with $2,000. They plan to contribute $300 every month for the next 13 years until the child is 18. They expect a 6% annual return.
Step-by-step breakdown:
- Initial Balance (P) = $2,000
- Monthly Contribution (PMT) = $300
- Years (t) = 13
- Monthly Rate (r/n) = 0.06 / 12 = 0.005
- Total Months (nt) = 13 × 12 = 156
- Principal Growth = $2,000 × (1.005)^156 ≈ $4,354
- Contribution Growth = $300 × [(1.005^156 – 1) / 0.005] ≈ $70,617
- Total Projected 529 Balance = $74,971
Common 529 Plan Questions
Are 529 plan contributions tax-deductible?
Contributions to a 529 plan are made with after-tax dollars at the federal level, meaning they are not federally tax-deductible. However, many states offer a state income tax deduction or credit for residents who contribute to their state's 529 plan. The primary tax benefit is that earnings grow tax-deferred and withdrawals are tax-free when used for qualified education expenses.
What if my child doesn't go to college?
If the beneficiary decides not to attend college, you have several options. You can change the beneficiary to another qualifying family member (like a sibling or even yourself) to use the funds for their education. Under new SECURE 2.0 Act rules, you may also be able to roll over a portion of unused 529 funds into a Roth IRA for the beneficiary, subject to certain limits and requirements. Otherwise, non-qualified withdrawals are subject to income tax and a 10% penalty on the earnings portion.
Does a 529 plan affect financial aid?
Yes, but typically the impact is minimal compared to other types of assets. If the 529 plan is owned by a parent, it is considered a parental asset on the FAFSA, and only up to 5.64% of the value is factored into the Expected Family Contribution (EFC). If the plan is owned by a grandparent, it generally does not count as an asset on the FAFSA, and recent rule changes have made it so that distributions from grandparent-owned 529 plans also do not count as student income.