Whether you’ve got toddlers, teenagers, or even grandchildren, one thing is certain—paying for college seems to get more expensive every year. In fact, the average annual cost (tuition, fees, and room and board) for a four-year, in-state public college is already $17,860 for the 2012–2013 tuition year, and $39,518 per year for a fouryear private college.1 It’s no surprise that college expenses can be overwhelming. There may be no better way to start saving than by opening and contributing to a 529 college savings plan account.

What’s a 529 plan?

Designed specifically to help pay for qualified costs associated with higher education, a 529 college savings plan is a state-sponsored, tax-advantaged account that allows for distributions to pay for things like tuition, fees, books, supplies, and any approved equipment a student may need, to study at an accredited institution.

What are the advantages of saving in a 529 account?

• Potential tax benefits. There are no federal income taxes on investment earnings for money in a 529 used to pay for qualified higher education expenses. This alone is a significant benefit, but there are other tax benefits as well.

• Minimal impact on financial aid. Many families worry that saving for college will hurt their chances of receiving financial aid. Since 529 college savings plan assets are considered parental assets, they are factored into federal financial aid formulas at a maximum rate of about 5.6%. This means that only about 5.6% of the 529 assets are included in the Expected Family Contribution (EFC) calculated during the federal financial aid process. That’s far lower than the 20% rate that is assessed on student assets, such as assets in an UGMA/UTMA (custodial) account.

• Greater flexibility. In many ways, a 529 college savings plan has fewer restrictions than other college savings plans. 529 plans have no income or age restrictions and have no upper limit on contributions.

• Great gift idea. Anyone with children or grandchildren who will likely go to college, whether they are now babies or teenagers, may want to consider investing in a 529 college savings plan. The sooner you start, the longer you have to take advantage of the tax-deferred growth and generous contribution limits.

How do I get started?

Call 800-544-2776 to talk with a Fidelity college planning representative about opening a MEFA U.Fund College Investing Plan account. Or, learn more about the benefits online now.

To read the full article, "The ABC's of 529 College Savings Plans," please visit Fidelity Viewpoints.

Do you have a 529 college saving plan for your child(ren)?