529 Plan Calculator Fidelity
Estimate your future education savings with this Fidelity 529 plan calculator.
529 Plan Savings Projection
Enter the amount you've already saved in your 529 plan.
Enter the total amount you plan to contribute each year.
Enter the expected average annual return on your investments (e.g., 7%).
How many years until the beneficiary starts college?
Enter the expected average annual increase in education costs (e.g., 4%).
Estimate the cost of one year of college today.
Your 529 Plan Projections
The total projected savings are calculated based on compound growth of your current savings and annual contributions, adjusted for inflation. The future cost of college is projected using the assumed inflation rate.
Savings Growth Over Time
Projected Savings Table
| Year | Starting Balance | Contributions | Growth | Ending Balance | Future College Cost |
|---|
Understanding Your 529 Plan with the Fidelity Calculator
Planning for higher education is a significant financial undertaking for many families. A 529 plan, a tax-advantaged savings vehicle, is a popular tool designed to help parents, grandparents, and other relatives save for a beneficiary's future education expenses. Fidelity is a leading provider of 529 plans, offering various options and investment strategies. This 529 plan calculator, inspired by Fidelity's offerings, helps you project the potential growth of your savings and understand how it aligns with future education costs.
What is a 529 Plan?
A 529 plan is an investment account specifically designed for saving for qualified education expenses. Named after Section 529 of the Internal Revenue Code, these plans offer tax benefits: contributions may be deductible at the state level, and earnings grow tax-deferred. Qualified withdrawals for tuition, fees, books, supplies, and certain room and board expenses are federal and state tax-free. Fidelity offers a range of 529 plans, often associated with specific states, allowing savers to choose based on investment options, fees, and state tax benefits. Understanding how your contributions and investment growth interact over time is crucial for effective 529 plan savings.
529 Plan Calculator Formula and Mathematical Explanation
This 529 plan calculator uses a compound interest formula combined with projections for future education costs. The core calculation for the future value of your savings involves:
- Future Value (FV) of Current Savings: FV = PV * (1 + r)^n
- Future Value (FV) of Annuity (Contributions): FV = P * [((1 + r)^n – 1) / r]
Where:
- PV = Present Value (Current 529 Savings)
- P = Periodic Payment (Annual Contribution)
- r = Annual Investment Growth Rate (as a decimal)
- n = Number of Years
The total projected savings is the sum of the future value of current savings and the future value of annual contributions.
Simultaneously, the calculator projects the future cost of education, accounting for inflation:
- Future Cost = Present Cost * (1 + i)^n
Where:
- Present Cost = Projected First Year College Cost (Today's Dollars)
- i = Annual Inflation Rate for Education Costs (as a decimal)
- n = Number of Years
The calculator then compares your projected total savings against the projected future cost of college. This comprehensive approach provides a clearer picture of your 529 plan projections.
Practical Examples (Real-World Use Cases)
Consider a family aiming to save for their child's college education, which is 15 years away. They currently have $5,000 in their 529 plan and plan to contribute $2,000 annually. They assume an average annual investment growth rate of 7% and expect education costs to rise by 4% annually. If the estimated cost of one year of college today is $25,000, this calculator can project:
- The total value of their 529 plan in 15 years.
- The projected cost of that first year of college in 15 years, adjusted for inflation.
- The total amount contributed over the 15 years.
- The total investment growth realized.
This allows them to see if their current savings strategy is on track to meet future expenses, informing decisions about increasing contributions or adjusting investment strategies within their Fidelity 529 plan.
How to Use This 529 Plan Calculator
Using this 529 plan calculator is straightforward:
- Current 529 Savings: Enter the total amount currently saved in your 529 plan.
- Annual Contribution: Input the total amount you plan to add to the plan each year.
- Assumed Annual Investment Growth Rate (%): Provide your expected average annual return. A common assumption is around 7%, but this can vary based on your investment choices.
- Years Until College Starts: Enter the number of years remaining until the beneficiary begins college.
- Assumed Annual Inflation Rate for Education Costs (%): Estimate how much college costs are likely to increase each year.
- Projected First Year College Cost (Today's Dollars): Estimate the cost of one year of college based on current prices.
- Click the "Calculate Savings" button.
The calculator will display your projected total savings, the inflation-adjusted future cost of college, total contributions, and total growth. It also provides a year-by-year breakdown in a table and a visual chart for better understanding of your savings growth over time. Use the "Reset" button to clear fields and start over, and "Copy Results" to save your projections.
Key Factors That Affect 529 Plan Results
Several factors significantly influence the outcome of your 529 plan savings:
- Time Horizon: The longer you have until college, the more time your investments have to grow and compound. Starting early is a key advantage for college savings plans.
- Contribution Amount: Consistently contributing, even smaller amounts, can make a substantial difference over time. Increasing your annual contribution can significantly boost your final savings.
- Investment Performance: The actual rate of return on your investments is critical. Higher returns accelerate growth, while lower returns or losses can hinder it. This is why selecting appropriate investments within your Fidelity 529 plan is important.
- Inflation Rate: Higher inflation means college costs will rise more rapidly, potentially outpacing your savings growth if not adequately planned for.
- Fees and Expenses: Investment management fees and plan administration fees charged by providers like Fidelity can reduce your overall returns.
- Withdrawal Rules: Ensuring all withdrawals are for qualified education expenses is vital to maintain tax advantages.
Frequently Asked Questions (FAQ)
What is the difference between a 529 plan and a Coverdell ESA?
Both are tax-advantaged education savings accounts. However, 529 plans generally have higher contribution limits, more flexible withdrawal options (including K-12 tuition up to certain limits), and no income restrictions for contributors. Coverdell ESAs have lower contribution limits ($2,000 per beneficiary per year) and income limitations for contributors.
Can I use a 529 plan for expenses other than tuition?
Yes, qualified expenses include tuition, fees, books, supplies, equipment, and certain room and board costs for students enrolled at least half-time. Recent legislation also allows up to $10,000 per year (lifetime limit for K-12) for tuition at public, private, or religious K-12 schools, and up to $10,000 (lifetime limit) for student loan repayment.
What happens if I don't use all the money in my 529 plan?
If funds remain after all qualified education expenses are paid, you can change the beneficiary to another eligible family member. If the funds are withdrawn for non-qualified expenses, the earnings portion will be subject to federal income tax and a 10% penalty.
Can I invest in a Fidelity 529 plan if I don't live in that state?
Yes, you can generally invest in any state's 529 plan, regardless of where you live. However, you may miss out on state income tax deductions or credits if you invest in a plan from a state other than your own. Fidelity offers plans sponsored by various states, so it's worth comparing options.
How often should I review my 529 plan performance?
It's advisable to review your 529 plan performance at least annually, or whenever significant life events occur. This allows you to assess if your investment growth rate assumptions are still realistic and if your contribution strategy needs adjustment.
Related Tools and Internal Resources
- Fidelity College Savings Calculator: Explore various college savings scenarios.
- Fidelity Compound Interest Calculator: Understand the power of compounding on your investments.
- Fidelity ETFs and Mutual Funds: Learn about investment options available for your 529 plan.
- Understanding Annuities: Explore other long-term savings vehicles.
- Target Date Funds Explained: A common investment strategy for retirement and education savings.
- Saving for College Guide: Comprehensive resources on planning for education costs.