BOSTON (CBS) – So when should you start saving for college? When the kid is in diapers!

Start stashing it away for college as early as you can. But it is never too late to begin at any age.

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. Not very popular since families did not want to lock in a long-term decision about college for their kids ahead of time.

College savings plans can now be set up so the money invested in mutual funds grows tax-deferred. And Congress made permanent the tax-free exclusion of earnings.

Massachusetts offers two options, U.Plan and the U.Fund. Both plans are managed by the Massachusetts Educational Financing Authority (MEFA).

The U.Plan enables families to lock in future tuition and mandatory fees at today’s rates at over 80 participating Massachusetts schools.

The U.Fund College Investing Plan, known as the 529 plan, offers investments in mutual funds. Fidelity Investments is the provider for the Massachusetts U.Fund Plan.

The 529 dollars can be used to pay for not only tuition and fees but other qualified education expenses as well, such as room and board, supplies and equipment, and that new computer the school requires.

The advantages of the 529:

  • Earnings grow tax-deferred
  • Tax free withdrawals; no Federal or Massachusetts income tax due on distributions
  • $50 minimum to open an account, $15 if you set up an automatic investment plan
  • Funds can be used at any accredited college nationwide
  • Account not in the student’s name – considered an asset of the parent/grandparent
  • Can be used for other family members
  • You make the portfolio choices
  • Low-cost investment options
  • High contribution limits ($300,000)
  • Annul Gifting limits are now $13,000, a donor can gift $65,000 in one year and it will be considered an accelerated gift for 5 years. Spouse can join in for $130,000
  • No income limit restrictions

A good place to learn more; The Saving for College website.

One more thing:  For the record, I opened a Massachusetts 529 plan managed by Fidelity for my granddaughter two days after she was born. I make annual contributions to the fund on her birthday every year.


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