BOSTON (CBS) - College is an investment and it is expensive. And costs are going up every year.
So what's a parent to do? Start stashing it away for college as early as you can. If the kid is in kindergarten you still have time to save for college.
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 UPlan and the UFund. The UPlan enables families to lock in future tuition and mandatory fees at today's rates, at over 80 participating Massachusetts colleges and universities. By buying special "Tuition Certificates", backed by Commonwealth of Massachusetts General Obligation Bonds, UPlan participants are guaranteed that the portion of tuition they buy today will keep pace with college inflation.
The UFund, a College Investing Plan (aka a 529 plan), offers parents, grandparents, and others a new way to not only meet, but also potentially beat, college inflation. Participants invest in structured portfolios of professionally managed mutual funds or a portfolio of your choosing. Proceeds from the UFund 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.
Many of the 529 plans available are run by financial institutions such as mutual fund companies for the individual states and each state has a different plan with different rules and different investment options and different tax benefits. Most of the states allow nonresidents to invest in their plan.
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.
You can hear Dee Lee's expert financial advice on WBZ NewsRadio 1030 each weekday at 1:55 p.m., 3:55 p.m., and 7:55 p.m.
Subscribe to Dee's Money Matters newsletter here.
for more features.