How much do I really need to save for college?

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 Q. How much do I really need to save for college? I know it’s crazy expensive. We’re having our first child and we don’t have much extra money. How do we decide what to save?

A. Congrats on your new baby, and on wanting to plan ahead.

The cost of college can be crazy expensive and it increases every year, said Ron Garutti, a certified financial planner with Newroads Financial Group in Princeton.

According to The College Board, the average 2014-2015 tuition increase was 3.7 percent for private schools and 2.9 percent for public schools. The ten-year increase has been 2.2 percent and 3.5 percent respectively, Garutti said.

And when he discusses planning for education savings with clients, he takes an even more conservative route, using a 6 percent inflationary factor.

The good news is that you have time.

“As a dad of two young children myself, I know how quickly the time flies,” he said.

Garutti offered this hypothetical scenario.

Let’s assume your child attends school in 18 years that costs $30,000 in today’s dollars, increasing by 6 percent annually, and you have nothing in current savings. You anticipate your savings will earn a hypothetical — strictly for illustrative purposes — non-guaranteed 7 percent rate of return.

Are you ready to save? Garutti said you’re looking at a deposit of $704 per month for the next 22 years. That’s in part because $30,000 in today’s dollars inflates to $85,630 18 years from now.

It’s important to start saving early and to invest your savings for a rate of return that can help you keep pace with increases in annual college costs,” said Charles Pawlik, a certified financial planner with Lassus Wherley in New Providence.

At the same time, you have to consider your other goals, such as retirement.

“For many folks, this simply boils down to putting away whatever amount they can above and beyond meeting needs in terms of ongoing expenses, maintaining an emergency cash reserve, and saving for retirement,” Pawlik said. “For others, aiming to fund anywhere from one-quarter to one-third of the projected cost may be a realistic goal.”

Deciding how much to save is not a simple formula.

Start with what you can, Garutti said.

If you only have $200 a month to save, start with that rather than burying your head in the sand and doing nothing, he said.

“Every little bit helps. If you get a raise try to increase your savings,” he said. “However, don’t put every dollar you have into education savings. Education savings is very important but other things such as retirement savings, liquid savings and other goals should also be considered.”

Next you need to choose where to save your college dollars, and a tax-advantaged savings vehicle can make a huge difference.

Pawlik recommends you use a 529 college savings plan, and there are plans offered all over the country. These plans can provide you the opportunity to invest for your child’s college education with the benefit of tax-deferred earnings on your contributions, as well as tax-free withdrawals from the account as long as funds are used to pay for qualified educational expenses, he said.

Funds withdrawn from a 529 plan that are not used for qualified educational expenses may be subject to a 10 percent penalty and ordinary income tax on earnings. There are some exceptions to the 10 percent penalty, Pawlik said, such as if funds are withdrawn because your child receives a scholarship, attends a Unites States military academy, or as a result of death or disability.

He also said, and we concur: It is important to remember that saving for your child’s college costs should not come at the expense of building/maintaining an emergency cash reserve that can provide a much needed buffer in the unfortunate event that you lose your job, or have a large unexpected expense.

“College savings should also not come at the expense of saving for your own retirement,” Pawlik said. “Remember, there are no loans or scholarships for retirement, and your child may end up needing to take care of you down the road if you haven’t put away enough to support yourself in your retirement years.”

Email your questions to moc.p1585391974leHye1585391974noMJN1585391974@ksA1585391974.

This story was first posted in August 2015. presents certain general financial planning principles and advice, but should never be viewed as a substitute for obtaining advice from a personal professional advisor who understands your unique individual circumstances.