Are your child's college savings on track? We've come up with a simple rule of thumb to see how you're doing. Our rule of thumb is based on how Americans typically pay for college. We call it the "college savings 2K rule of thumb." The average American should aim to save 2,000 times (2K) their child's age. For example, if your child is 5 years old, you should have $10,000 put away for college.
Of course, you may not be the average American! Another way to check your progress is to use our new College Savings Calculator. After answering 5 simple questions, you'll see how much you should consider saving each month to meet your college savings goal.
Once you have a rough idea of how much, and you've made sure you're on track with other financial goals like saving for retirement, you can focus on the how to save.
While there are different types of plans available for college savings, a 529 college savings plan is a tax-advantaged account that offers fewer restrictions than other plans (no income or age limits; you can invest in any state's plan) and you can set up regular, automatic contributions. While parents are often the account holders, other family members or family friends can also open a 529 (some plans offer gifting options too).
You can invest in a 529 plan from any state and use that money at colleges across the country. Be sure to research your own state's plan for potential benefits, including in-state tax benefits.
Here are some of the other perks of a 529 to keep in mind:
Investing involves risk, including risk of loss.
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