For the 2011–12 academic year, the average cost of tuition, fees, room, and board reached $16,313.2 Private institutions are even more expensive, although their costs are rising at a somewhat slower pace. For the 2011–12 academic year, the average cost for tuition, fees, room, and board was $37,698 at nonprofit four-year colleges and universities.
A Tax-Savings College Savings Plan
Just like saving for retirement, the key to saving for a college education is to make regular contributions. One helpful savings vehicle is a Section 529 plan, which is a state-sponsored or college-sponsored program designed to help families save for future higher-education costs. Each plan has its own rules and restrictions, which can change at any time. The money in a 529 savings plan accumulates on a tax-deferred basis and can be withdrawn free of federal income tax as long as it is used for qualified education expenses at accredited post-secondary schools, such as colleges, universities, community colleges, and certain technical schools. Qualified expenses include tuition, fees, room and board, books, and other supplies. Section 529 plans feature high contribution limits (set by each state), and there are no income restrictions for donors.
As with other investments, there are generally fees and expenses associated with participation in a 529 savings plan. Most states offer their own 529 programs, which may provide advantages and benefits exclusively for their residents and taxpayers.