Classroom Cash

529 college savings plans continue to improve. Good thing, too. Just look at what a degree is going to cost you.

He may be 46, but Bruce Sneed still remembers the faces of his mother and father the day he graduated from college, just as if it were yesterday. His dad was a master sergeant in the Air Force, his mom a homemaker, and Bruce–now a financial planner in Woodbridge, Virginia–was part of the first generation of his family to ever don a cap and gown. “They were just so proud,” he says, recalling the day he left undergrad life behind at St. Mary’s University in San Antonio. “It was their ultimate sense of accomplishment.”

That’s why when Bruce and his wife Ursula, look at their own children, they plan to be bursting with the same kind of pride. The couple is busy saving up for the education of their son Laurence, 8, and daughter Kendall, 4. They already have around $28,000 put aside for Laurence and $22,000 for Kendall. “Our goal as a family is to build on each generation and raise the bar a little bit higher,” Bruce says. His eldest son, Marques, 25, a graduate of Virginia’s Norfolk State University, entered college prior to 529 plans hitting his father’s radar.

Given the spiraling costs of higher education, it’s a good thing the Sneeds have a running start. In 2006, the average annual cost of tuition, room, and board at an in-state public university was $12,796 according The College Board. And at private universities? You don’t want to know. (Or if you really do, it’s $30,367.) That’s in addition to all the other daily expenses you’re shouldering, from the monthly mortgage to your own retirement kitty.

That’s why, to get within shouting distance of these figures, they would be well advised to consider one of the most popular college savings vehicles out there: The 529 plan. Thanks to tax-free earnings (just recently made permanent), expanding investment options, and burgeoning state tax benefits, 529s are getting more attractive all the time. “A 529 plan is to college savings what your 401(k) is to your retirement,” says Jacqueline Williams, chair of the College Savings Plans Network, which oversees state-sponsored plans around the country. “The two biggest concerns families have are saving for retirement and saving for their kids’ education. So the 529 is really critical.”

And they’re proving irresistible to fretful parents. There’s now more than $100 billion in total plan assets tucked away in some 9.5 million accounts nationwide, a 31% increase from 2006. Here’s how they work: Parents, grandparents, or anyone for that _matter, can set up a 529 account, usually under their names with the child as the beneficiary. They then make contributions–maybe every paycheck, or maybe once a year–and direct those funds into investments of their choice, depending on their risk tolerance. That money grows until the child reaches college age, whereupon it’s withdrawn to cover costs like tuition, room and board, and _textbooks.

The good news? Any earnings on that money, if used solely for educational purposes, are entirely tax-free. The better news? Recent tax law changes have removed the

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