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College Will Cost How Much? What to Know About 529 Plans

Regardless of how old your child is, there are ways to start saving for their diploma.

Getting a college degree is a pricey prospect that keeps getting pricier.

The current average annual cost for tuition, room and board at a private four-year institution is $42,419. If you are a new parent who will be sending your child to college in 18 years, that cost will more than double, with the total price tag for four years of private college estimated to be a whopping $323,900.

Regardless of how old your child is, there are ways to save for their diploma. One option is to set up a 529 plan, a savings plan specifically for education that has tax advantages.

"Each state offers one or more, and there are often state tax breaks or other perks for residents who contribute," NBC News contributor Jean Chatzky said. "The account itself works much like a retirement plan. Contributions are not deducted on your federal return, but money grows tax-free, and there are no taxes on withdrawals."

Here are some key facts about 529s:

The money can only be used to fund college and higher education.

Tuition, books, and room and board are among expenses that qualify. 529s can be applied to most accredited colleges and graduate schools, including trade schools. There may be penalties for unauthorized purchases.

You can choose a plan from any state, regardless of where you live.

There are often multiple 529 plans to choose from in each state. But it's worth looking at options elsewhere. Each plan has its own set of fees, including enrollment fees. Direct-sold 529 plans, which is more of a do-it-yourself method of choosing a plan, has lower expenses, but adviser-sold 529 plans offer you the opportunity to get advice from a financial professional. Compare 529 plans here, and see questions to ask before investing in a 529 plan here.

Anyone can open a 529 account.

Any U.S. citizen who is at least 18 years old can set one up. It doesn't have to be a parent; a grandparent or other relative or family friend can create one, naming a college-bound child as the beneficiary. Adults can also open 529 plans to save for their own future education costs.