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Save Now for College: It’s Never Too Early to Start

Looking to kick start your child’s college savings? Good for you! There’s no time like the present. A state-run 529 plan is a convenient option these days. Here are the most commonly asked 529 questions and some helpful answers.

Why save for college?

Conservative estimates online commonly predict that in 15 years, four years at a public university will run a whopping $100,000 or more. Try this handy calculator to input your child’s age and other variables to predict what his college will cost.

What is a 529 plan?

A 529 is a college savings plan sponsored by a state to help parents set aside money for their children’s college costs. It is named after its section number in the IRS code. Through a 529, you are saving money in a tax-deferred account, which means you won’t pay tax on the interest earned.

Who manages the funds?

Rather than managing the money themselves, states employ investment companies – often well-known ones such as Vanguard or Fidelity. These days, many plans feature age-based segments; for instance, when your child is 0-3 years old, the investments are mainly in aggressive stocks, whereas in each consecutive age segment they gradually shift to more moderate vehicles such as bonds and money market accounts.

Are there any tax benefits?

Yes. You pay no federal tax on the account’s earnings upon withdrawal, as long as you do use the money for higher education. In addition, some states enable you to deduct a portion of your contributions from your state taxes.

What if my child doesn’t want to go to college (or scores a full-paid scholarship)?

You can roll the account over to another family member. Or, the money can be cashed out with the only penalty being you’ll need to pay the tax on the earnings.

What if my child wants to take time off between high school and college?

Most states have no age limit for when the money in your account has to be used.

Can I open an account for a niece, nephew, grandchild or friend’s child?

Yes. There are no restrictions on who opens an account for whom.

Who can contribute money to the account?


How can I find a 529 plan?

The Web site provides a useful 529 look-up tool which you can use to find more information on a total of 117 plans by state, type of plan, or name of plan. For an additional resource when you’re researching and shopping for plans, check out the U.S. Securities and Exchange Commission’s detailed Introduction to 529 Plans page.