How this calculator works
A 529 plan is a US state-sponsored account for education costs. Contributions are not deductible for federal tax, but the money grows tax-free and qualified withdrawals for tuition, fees, books and some living costs are not taxed. This calculator projects two things separately and then compares them. On the cost side it inflates today's annual cost for each year until school starts and for each year of school. On the savings side it compounds the current balance and the monthly contributions until the first term. The amount needed on day one is not the simple sum of four future tuition bills: the balance keeps earning while the later years are still in the future, so each later bill is discounted back at the plan's return. The difference between that discounted target and the projected balance is the shortfall or surplus. The model ignores state tax deductions, grants, scholarships, the gift tax annual exclusion, plan fees and the 10% federal penalty on earnings withdrawn for non-qualified costs. A Canadian equivalent is the Registered Education Savings Plan (RESP), which adds government grants and has different rules.
Formula
Years to school = start age - current age. Cost in school year k = current cost x (1 + inflation)^(years + k). Total cost = the sum of those annual costs. Target at the start of school = sum of cost_k / (1 + return)^k. Balance at the start = P(1 + i)^n + D((1 + i)^n - 1)/i, with i = return / 12 and n = months. Monthly contribution needed = (target - P(1+i)^n) x i / ((1+i)^n - 1).
Worked example
A five-year-old starting school at 18 has 13 years to save. A $25,000 annual cost rising 4% a year becomes $41,626.84 in the first year and $46,824.53 in the fourth, for a total of $176,766.87. Discounted at a 6% return, the amount needed at the start is $161,853.88. With $10,000 already saved and $300 a month at 6%, the projected balance is $92,406.56, so the shortfall is $69,447.31 and the monthly contribution needed is about $594.96.
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Frequently asked questions
Is a 529 contribution deductible?
Not on your federal return. Some states offer a deduction or credit for contributions to their own plan. The growth is tax-free, and qualified withdrawals are not taxed, which is where the benefit comes from.
What if the child does not go to college?
The account can be transferred to another family member, used for other qualified education, or left for later. Earnings withdrawn for non-qualified purposes are taxed and normally carry a 10% federal penalty.
Does this include scholarships or grants?
No. Enter a lower annual cost if you expect a scholarship, or subtract its value from the target. You can also withdraw up to the scholarship amount without the penalty, though earnings are still taxed.
Should I use a 529 or an RESP in Canada?
A 529 is a US plan. In Canada the equivalent is an RESP, which adds the Canada Education Savings Grant on the first part of contributions. The two have different limits and tax treatment, so choose the plan that matches where you file tax.
What return should I assume?
Lower it as school approaches. A plan that is mostly in shares five years before the first term risks a fall just when the money is needed, so many families move to safer holdings over time.