Getting the 411 on 529 savings plans

It’s back-to-school time and let’s face it — education can be expensive.

The College Board reports that the average cost of in-state tuition, fees, room and board at a public four-year college in the U.S. was $20,770 last year. And that’s just a starting point — out-of-state tuition, private universities or graduate school can greatly increase that bill.

Yet relatively few people are aware of 529 savings plans, which can help cover costs. A recent survey by Edward Jones found that 71 percent of Americans don’t even know what they are.

A 529 is a tax-advantaged investment plan that was originally designed to save for higher education expenses. Recent changes in the tax law have increased their flexibility, and they now may be used for private-school tuition from kindergarten through high school, or transferred to other accounts to pay expenses for disabled youths.

HOW THEY WORK

While anyone can set up a 529 plan, typically they’re opened by parents or grandparents with a child as the beneficiary.

Contributions to the plan grow free from federal income tax, and withdrawals are tax-free when used for qualified expenses. It costs very little to get started and often can be done online.

“There is no better place to save for college than a 529 college savings plan,” said Ric Edelman, founder of Edelman financial services in Fairfax, Virginia.

The plans are run at the state level. While you don’t need to use your state’s plan, there are sometimes state-level tax incentives for doing so.

BEN MARGOT — THE ASSOCIATED PRESS In this file photo students walk near the Martin Luther King Jr. Student Union building on the University of California at Berkeley campus in Berkeley, Calif. A 529 is a tax-advantaged investment plan that was originally designed to pay for higher education expenses. But recent changes the tax law have increased their flexibility.