18 Sep Where should we invest college savings?

Q. My parents saved, in their own names, about $100,000 for college for my two kids who are 8 and 6. If I want to have enough for them to attend a four-year state school, how much more do we need to save monthly or yearly? And where should we put the money?
— Overwhelmed

A. Every bit helps when it comes to saving for college, so it’s great that your parents are saving for their grandkids.

The average cost for a public college, according to The College Board, is around $100,000. That doesn’t include room and board, which boosts the price.

Before going further with your question, you need to consider how much of the cost you want to cover and whether your child is likely to get financial aid.

Whatever the answer to those questions, the best investment will probably be a 529 plan, said Bill Connington of Connington Wealth Management in Fairfield.

“A 529 plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs,” he said. “It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996.”

As long as the plan satisfies a few basic requirements, the federal tax law provides special tax benefits to you, the plan participant, Connington said. Some states — but not all, and not New Jersey — offer tax incentives for contributions.

The funds invested grow tax-free as long as they’re used for qualified education costs.

529 plans are usually categorized as either pre-paid or savings plans.

“Savings plans work much like a 401(k) or IRA by investing your contributions in mutual funds or similar investments,” Connington said. “The plan will offer you several investment options from which to choose. Your account will go up or down in value based on the performance of the particular option you select.”

Pre-paid plans work differently. These let you pre-pay all or part of the costs of an in-state public college education, Connington said.

“They may also be converted for use at private and out-of-state colleges,” he said.

There’s also a separate 529 plan — The Private College 529 Plan — to pre-pay tuition for private colleges, he said.

As for how much you need to save going forward, we plugged some numbers into one of SavingForCollege.org’s calculators.

We assumed your 8-year-old would go to a school that costs $25,000 a year in today’s dollars. We also assumed half of the $100,000 college savings your parents have socked away will go to this child. The calculator said you’d need to save $266 per month to fully fund this education.

Of course, numbers can change, so you should tool around with the calculator — and others you find online — to see how variables change what you’ll need to save.

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This post was originally published in September 2017.