The 529 College Savings Plan
BOSTON (CBS) - College is still a good investment and it is expensive. And the costs are increasing.
Best advice, start stashing it away for college as early as you can. Before you even try potty training.
A good place to start is with a 529 Plan. These originally were pre-paid tuition plans where you would lock in a tuition rate at a school within your state.
Now college savings plans can be set up so that the money is invested in mutual funds and grows tax-deferred until the kid starts college. And Congress made permanent the tax-free exclusion of earnings.
Consider this; you invest $20,000 in the plan and it earns 7% over 15 years so it's now worth $55,000. You will not owe Massachusetts or federal income tax on $35,000 of earnings. That could be a savings of almost $10,000 that can be used for the kiddo's school expenses.
Massachusetts offers two options, the U.Plan and the U.Fund. The U.Plan enables families to lock in future tuition and fees at today's rates at over 80 participating Massachusetts colleges and universities.
By buying special "Tuition Certificates" U.Plan participants are guaranteed that the portion of tuition they buy today will keep pace with college inflation.
The U.Fund is a College Investing Plan, aka a 529 plan. It offers parents, grandparents and others a way to not only meet, but also possibly beat college inflation. Participants invest in structured portfolios of professionally managed mutual funds or a portfolio of mutual funds of your choosing.
Proceeds from the U.Fund can be used at almost any accredited college in the country. They can be used to pay for not only tuition and fees, but other qualified education expenses as well, including room and board, supplies and equipment, like the new computer the school requires. But not the car the kid thinks he needs on campus.
Fidelity Investments is the provider for the Massachusetts U.Fund College Investing Plan and both plans are managed by the Massachusetts Educational Financing Authority (MEFA).
One more thing: A good place to learn more is at Joe Hurley's website Saving for College and for the record I opened a MASS 529 plan for my granddaughter when she was 3 days old. I put money into her plan twice a year. Christmas and on her birthday. Plus the points that I earn on my credit card go automatically into the college fund and I have signed up for Upromise and use those points for her 529 plan as well.
