College account calculations - will $100,000 be enough?

 

This months our college fund 529 account reached $100,000.

Will that be enough for college? 

Our daughter is 14 years old this year. She will start college when she is 19, or in 5 years. 

Let's see the costs of the local college and project the costs with inflation 5 years forward. 

Current 4-year college costs:

Local college costs per year are $26,997 (including $9,674 tuition and $17,323 in books and on campus room and board). 

Taking out on campus room and board and leaving generous $5,000 for books ect, the college costs per year are approximately $15,000. 

For the four years of college it is $15,000x4=$60,000. 

Now the inflation needs to be estimated to get the costs closer to reality. 

Projected costs with inflation:

With recent inflation going crazy, I will project higher than historic inflation (using inflation calculator).

With 5% inflation in 5 years that will be $76,567

With10% inflation in 5 years that will be $96,630

Hopefully the inflation will not be higher than 10%. 

Looks like with 5% or 10% inflation in 5 years time the sum of $100,000 should be enough. I am stopping the contributions. The balance will still be invested as "aggressive growth" for now, since I don't feel that the market will go significantly down this or the next year. As soon as I feel "uneasy", I will move all to cash (the same as I did in 2022). 

As a reminder to myself, there is no tax benefit for contributing to this 529 plan since we live in a state without state income tax. However, there is still the benefit of growing and withdrawing tax-free for qualified educational purposes. 

If I withdraw to use on non-qualified expenses, I will pay both federal income tax and a 10% penalty on the earnings. 

Update 5/2/2024

The federal government only allows distributions to pay for tuition up to $10,000 per year to pay for elementary and secondary schools. 

There is NO annual limit for college expenses. 

Remaining funds can be rolled over into the a beneficiary's Roth IRA, up to a lifetime limit of $35,000.

The rollover amount each year cannot exceed the annual Roth IRA contribution limit, which is $7,000 for 2024.