Don't underestimate the value of time. The longer you keep your money invested, the more time it has to add up and potentially grow.
Let's say you set aside $1,200 a year—that's just $100 a month—in a tax-deferred account such as a 529 college savings plan,* for a total investment of $21,600 over 18 years. If this investment earns 5% a year, you'll have about $35,400 at the end of 18 years.
But if you wait 9 years before you start saving, you'll have accumulated about $13,900, factoring in that same 5% return.
In other words, you'll only have earned about $3,000 in that 9-year span—as opposed to nearly $14,000 over 18 years!
That's the beauty of compounding—earning money on your investment and then earning money on those earnings. And over time, it can only growmore powerful.
Starting to save earlier could mean you'll have moresaved
These hypothetical examples don't represent the performance of any particular investment. The assumed 5% rate of return is for illustrative purposes only. Actual market returns will fluctuate annually and aren't guaranteed. The ending balance doesn't take into account any taxes or penalties that may be due upon distribution.
Read chart description
Starting to save earlier could mean you'll have more saved
This chart shows that a monthly contribution of $100 will compound more if you start saving earlier, giving the money more time to grow. If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.
FAQs
If you save $100 a month for 18 years, your ending balance could be $35,400. If you save $100 a month for 9 years, your ending balance could be about $13,900.
What does Dave Ramsey say about 529 plans? ›
“I would not overfund your 529. At today's world, I would underfund your 529 … The higher ed landscape is going to change so much in the next 18 years as the student loan epic failure debacle unfolds,” Ramsey said. “They have been overcharging for too long, and it's come home to roost.
What is the average amount saved in a 529 plan? ›
Average 529 Balance and More Savings Statistics
In June 2022, the average 529 balance was $25,903. In June 2021, the average 529 balance was much higher at $30,287.
How to save $10,000 in 6 months? ›
How I Saved $10,000 in Six Months
- Set goals & practice visualization. ...
- Have an abundance mindset. ...
- Stop lying to yourself & making excuses. ...
- Cut out the excess. ...
- Make automatic deposits. ...
- Use Mint. ...
- Invest in long-term happiness. ...
- Use extra money as extra savings, not extra spending.
What happens when you invest $500 a month
| Rate of return | 10 years | 30 years |
|---|
| 4% | $72,000 | $336,500 |
| 6% | $79,000 | $474,300 |
| 8% | $86,900 | $679,700 |
| 10% | $95,600 | $987,000 |
Nov 15, 2023
529s are funded with after-tax dollars, which means that over time the investments grow tax-free. These plans are attractive for wealthy families because they provide a way for a parent or grandparent to transfer much more money to a child than they would be able to without incurring gift taxes, Stokes says.
Is it risky to have a 529 plan? ›
All investing is subject to risk, including possible loss of principal. Be aware that fluctuations in the financial markets and other factors may cause declines in the value of your account.
What happens to 529 money if you don't spend it? ›
Beginning in 2024, 529 account owners can roll over unused 529 assets to a Roth IRA for the beneficiary, subject to certain criteria and limits.
Why don't 97% of people use 529 college savings plans? ›
Part of the reason may be that people are simply unfamiliar with 529 plans, Ms. Hume said. Research conducted for the College Savings Plans Network, a group that promotes the accounts, found that even though they had been around for more than 20 years, only about a third of Americans had heard of them.
What is better than a 529 plan? ›
A 529 savings plan is generally an all-around good choice to pay for your child's (or your own) college, while a Roth IRA may be a better option as a backup account to supplement educational expenses.
The Roth IRA also offers benefits in terms of available investments, unlike the 529, where investment choice is limited to funds that may not offer low-expense options. That's not the case with a Roth, which allows you to invest in nearly anything that trades on a public market.
How much should I put in my child's 529 per month? ›
Ideally, you should save at least $250 per month if you anticipate your child attending an in-state college (four years, public), $450 per month for an out-of-state public four-year college, and $550 per month for a private non-profit four-year college, from birth to college enrollment.
What percentage of kids have 529? ›
Surveys show that less than a third of parents are aware of 529 college savings plans. Even more shocking, however, is the number of children with 529 plans. Less than 18 percent of children under age 18 have a 529 plan.
Can you put too much in 529? ›
However, some families face another problem – they saved too much money in a 529 college savings plan. It can be shocking that it's actually possible to save more money than is needed to pay for college education expenses. But it's more common than you might think.
What if I invest $200 a month for 20 years? ›
Investing as little as $200 a month can, if you do it consistently and invest wisely, turn into more than $150,000 in as soon as 20 years. If you keep contributing the same amount for another 20 years while generating the same average annual return on your investments, you could have more than $1.2 million.
What happens if you save $100 dollars a month for 10 years? ›
(Enter "$100" in the "Contribution amount" field, then select "Monthly" for the "Contribution frequency" option.) You would end up with $32,023.26 after 10 years, compounded daily (assuming 365 days a year). The interest would be $10,023.26 on total deposits of $22,000.
What if I invest $100 a month for 30 years? ›
Investing $100 per month, with an average return rate of 10%, will yield $200,000 after 30 years. Due to compound interest, your investment will yield $535,000 after 40 years. These numbers can grow exponentially with an extra $100. If you make a monthly investment of $200, your 30-year yield will be close to $400,000.
How much is $100 a month for a year? ›
$100 monthly is how much per year? If you make $100 per month, your Yearly salary would be $1,200. This result is obtained by multiplying your base salary by the amount of hours, week, and months you work in a year, assuming you work 40 hours a week.
