BOSTON (CBS) – Saving for college should start when your little one is still in diapers! However, it is never too late to begin at any age.

Listen to Dee Lee’s report:

College costs are increasing far faster than any other commodity we may want for our family. It appears to be increasing 6-8% a year.

A good place to start to save 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 for families did not want to lock in a long term decisions about college for their kids.

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

Massachusetts offers two options the, 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 the 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, including room and board, supplies and equipment including a 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, you can set up an automatic investment plan for as little as $15
  • Funds can be used at any accredited college nationwide
  • The account is not in the student’s name, presently it is considered an asset of the custodian, usually the parent or grandparent
  • Can be used for other family members
  • You make the portfolio choices
  • Low-cost investment options
  • High contribution limits ($350,000)
  • Annual 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. Their 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 semi-annual contributions to the fund on her birthday and the first of the year.


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