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Ask Dave

How Much For Baby Step 5?

Lindsey and her husband are on Baby Step 5. How much should they be contributing toward their kids' college funds? They make about $75,000 a year. Dave offers Lindsey some options.

QUESTION: Lindsey in Tulsa and her husband are on Baby Step 5. How much should they be contributing toward their kids’ college funds? They make about $75,000 a year. Dave offers Lindsey some options.

ANSWER: Baby Steps 4, 5, and 6 are done at the same time. We’re putting 15% of your income in Baby Step 4 toward retirement, and then we do kids’ college in Baby Step 5. Baby Step 6 is the house. We leave kids’ college open and vague because it means so many different things all the way from people with grown kids to people with little kids or one kid or two kids or six kids or different incomes. It’s all over the place on college.

You’re at the 15% level, and now you’re ready to sit down and start putting something aside for the kids. If you did $2,000 per kid per year, that would be huge. That’d be $166.67 a month per kid, so about $450—$500—for all three, right? Per month. That’d be a lot. The Education Savings Account—the most you can put in that into a mutual fund is $2,000 per year. That’s the most you can do per child. If you wanted to do something very simple, you could say, “We’re going to put $6,000 in for three children and fully fund that.” You don’t have to even fully fund it. You could just put up to $2,000.

Beyond that, if you wanted to do some more, you’d probably start giving the 10- year- old more than you would the 6-year-old because you’ve got longer to save. You’ve got eight years with one and 12 years with the other.

I would say I’m going to do my 15% into retirement. Set your kids’ college up in such a way that it looks like they’re going to get to go to college, and we’re going to pay for most of it, which is probably about what we would do here. Then above that, once we get the kids’ college thing set… Let’s say we did the $500 a month, which covers all three of them. Once that’s set up and we say it’s not going to quite be enough but enough for us, then everything above that, we’re going to start throwing at the house. That’s how I would do it.

If we put in $166.67 a month and we’ve got eight years with a 12% figure, starting with nothing, the 10-year-old would have about $27,000. The 6-year-old would have about $53,000. To give you an idea today, it takes probably about $50,000 to $60,000 to send a kid through four years of state school, including the dorm and dorm food.

A fully funded ESA is not going to pay for 100% of their college. They’re going to be working or living at home or you’re going to save up some other money. If you want to do some calculations like that, you can go online at our website at and hit some of the calculators, or you can just get with our Endorsed Local Provider (ELP) who does mutual funds and who will sit down with you and help you calculate what you would need to do for each kid. You can look at different scenarios that way. That 6-year-old is going to end up with about twice as much money as the 10-year-old if you put the same amount in for each one of them starting right now. That’s a bit of a concern. You probably want to be a little bit more even-handed than that among your kids.