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529 Plan – Lump Sum Educational Funding

Nancy recently received $250,000 from her mother’s life insurance policy. She wants to use a portion of the money to fund her son’s college education that currently costs $10,000 a year and she anticipates an 8% yearly increase. Nancy can earn 7% on her investments and the overall inflation rate is 3%. Nancy’s son will start school in 8 years and it will take him 5 years to complete his undergraduate degree. Approximately how much money should Nancy contribute to a 529 Plan today to fund her son’s college education?

  1. $40,000
  2. $45,000
  3. $50,000
  4. $55,000