Number Crunching: A College Fund

by Michelle Vandepas | More from this Blogger

My daughter is three. We are going to open her a 529 savings college plan with a $1,000 initial deposit into it. We plan on putting $500.00 per year in to the plan for the next fifteen years.

That is only $42.00 per month. (ok, it is really $41.66 per month). We can handle that. We'll plan and budget for $500.00 per year, probably for a summer deposit, so it doesn't come over the expensive December month.

Since this is a 529 plan, the money will not be taxed.

So, how much will she have for college?

Can you figure it out? Or does the math make your head spin?

Not to worry, there are lots of tools to help you figure this stuff out. Some of my favorites are on MSN.com, but all the financial websites have calculators that you can use.

I went to one and got these numbers:

9% interest rate:

$1,000 initial deposit $500 annual deposit over 15 years 9% compounded monthly $18,965. total saved

Total deposits:$7,500 Total interest earned:$10,465 Total taxes paid:$0

Total Saved: $18,965

At 12%, here are the numbers.

deposit $1,000 $500 annually over 15 years 12% compounded monthly Amount saved: $25,691.

Total deposits:$7,500 Total interest earned:$17,191 Total taxes paid:$0

Total Saved: $25,691

This won't be enough for a four year college all expenses paid. We know that. Yet this small amount each year won't put a large hole in our budget. Combined with our daughter working, scholarships, grants, she'll be well on her way to completing college!

But, what if we increased the initial deposit to $5,000.00 but kept everything else the same?

9% interest:

$5,000 start balance $500 deposit annually over 15 years 9% compounded $34,317 total balance

Total deposits:$7,500 Total interest earned:$21,817 Total taxes paid:$0

Total Saved: $34,317

12% interest: $5,000 starting balance $500 annual deposit over 15 years 12% compounded monthly 49,675. savings

Total deposits:$7,500 Total interest earned:$37,175 Total taxes paid:$0

Total Saved: $49,675

Ok, that's a lot of money......

And just for fun:

5,000 initial deposit at an average annual 12% and left in for thirty years?

Total Saved: $179,748

That's looking pretty good!

I like it. It's a good start towards her retirement account.

We're not in charge of saving toward our daughters retirement, but it is fun to crunch numbers.

What if you started now? How much would you have in thirty years?

Would you rather pay off debt? Here's an article

Other ways to pay for college

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Learn more about Michelle Vandepas

In a previous life, Michelle was president of a medical manufacturing company, and then in private practice as a holistic business consultant.

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