Are you a parent, looking to put some money away now for your young son or daughter’s future in education? Would you like to know the best option for you when it comes to investing money to pay for future higher education expenses? The 529 college savings plan is an investment vehicle conceived specifically for this purpose, and could save you a lot of money in taxes. This calculator is designed to go hand-in-hand with the 529 plan, and can show you exactly how much money you could save. Of course, some knowledge of your situation and some degree of estimation is required before using the calculator. After punching in such details as the amount of money you expect to save each year, the calculator will display the difference in savings between using the 529 plan and a traditional, taxable account.
How to use it
To begin using the calculator, simply click on the first text box and enter in the amount of money you have saved up initially. That is, the initial investment you hope to put into the savings plan. Then, enter both the amount of money you expect to save in a year and the amount of years you expect to save for, before your child begins college. Finally, enter your before-tax return on savings, which is likely a small figure, and your current tax bracket. If you are currently unaware of your tax bracket, simply leave the box blank – the calculator will assume you are in the 25th percentage. Upon clicking on calculate, you will then be shown both the amount of money your investment would garner using the 529 savings plan and using a regular, taxable account.
To create an example to run through the calculator, we can imagine that the parents of an 8-year-old child are looking at the 529 Plan in order to put some money away. They currently have $1,000 put to one side, so simply enter that figure into the box marked “Initial Investment”. The couple expect to be able to add another $1,000 to that every year until the child is 18. So, simply enter this figure into the “Annual Savings” box and put 10 years into the “Numbers of Years Adding Savings” box. We can imagine that the return is currently 5% and the tax bracket is 25%, so enter these into the relevant boxes. The results tell us that the couple could accumulate $14,836 with the 529 Plan. Yet, the same investment in a taxable account would earn them $13,758 in comparison.