Many of you may see the topic and immediately want to hit the back button on the browser or click to another web site but I caution you that this small article may help you save thousands of dollars and that's not only in aspirin for headaches. If you don't have children, think of those friends or family members that do. If you do have children or grandchildren, it is wise to stop spending time deciding between Nike's or Adidas for the little one's second year in school and think of ten years down the road to college. More than likely, if you plan early, you will relieve a lot of stress on yourself down the road (college funding is one thing, raising a teenager is something I can't help you with). It's never too early to start saving and it never hurts to start even when you think it may be too late. Currently, the average annual tuition bill for private schools is over $21,000 while public institutions are over $8,000. Many models of future tuition costs for a newborn 17 years in the future at an average 5% annual inflation rate, the same four year college tuition could push higher education costs (including room and board) well past $190,000 per child. This fact is not there to scare you but rather to alert you to the skyrocketing costs of higher education. The understanding that goes along with these projections is to get you to start saving money and soon. Luckily there are several ways to help meet your financial goals of getting your children, grandchildren, nephews, nieces and your paperboy off to Ivy League Schools without having to take a second job at Burger King and a third shift at 7-11 to do so. It all starts with knowing the facts, planning, planning and more planning.

Following is only a brief overview of a few different ways in which to save for the youngster's college education

Prepaid tuition plans are an intelligent way to set aside money. The way this works is that you pay up front, tuition costs for four years for a state college at today's rates (generally, 4-10,000 per year) and is guaranteed by the state. This has been a very conservative approach as the rates are backed by state guarantees. They can bear stiff penalties if the student wants to go to a school out of state or decides to not proceed with higher education.

Another type of plan is set up under custodial ownership (UGMA/UTMA) in where a brokerage account is set up with a custodial account registration. The custodian controls the investment until the child reaches a predetermined age in which the assets of the trust be used for the benefits of the child. All or a portion of the earnings are tax-free or taxed at the child's rate.

Education IRAs are still a big part of savings for some because it allows you to withdraw money tax-free. The beneficiary can withdraw money for college related expenses but may incur a penalty for non qualified withdrawals. The account owner (usually the parent) has complete control over the account and the entire account can be transferred to another beneficiary without penalties. This sort of investment does have its downfall in that there is a maximum of $500 annual contribution and you may not contribute to an educational IRA and a Section 529 plan in the same year. Annual income restrictions exist in that no one may contribute to the plan if Adjusted Gross Income is over $110,000 for singles or $160,000 married filing joint.

The wave of the future is with Section 529. Some may have heard of these plans but to others that have not, you may want sit down while reading this. Started in 1997, Congress enacted a bill in which a savings plan very similar to the education IRA's be set up to counter the sky-rocketing costs of college expenses. While active in a Section 529, appreciation on the assets are non-taxable and starting in 2002, all withdrawals are federal tax free. Currently, when the assets are withdrawn, taxes are imposed but at the child's reduced tax rate (usually 15%) and not taxed at the state level. Basically, anybody can contribute to the plan and it is a great way to reduce taxable estates. Contributions to the plan (i.e. from grandparents) can move out $10,000 per year or $50,000 in the first year (accelerating gifts for five years but no other contributions may be made within the five year time span) without triggering any federal gift tax. Mind you, that is per student, per donor, per year. The plans have no income limitations and the plans can benefit anybody. You may also set up an investment fund for yourself if you plan to go back to school. The total assets of the plan can be used for practically anything relating to college and those expenses. In Illinois, accounts are managed by Solomon Smith Barney but that does not limit your ability to contribute to another state's fund using other investment managers such as Fidelity, Putnam Group (Ohio), Alliance Capital (Rhode Island) or Strong Funds (Oregon).

As any investment, you should first understand the goals you are trying to accomplish and then research those investments vehicles. On the Internet, you may find the following helpful:

www.brightstartsavings.com (Illinois' Section 529 plan)
www.savingforcollege.com
www.upromise.com

Sign up for the free program and an individual account will be set up to benefit the child through purchases you make from over 40 supporting corporate partners (i.e. GM, Toys R Us, Exxon/Mobil, AT&T). 1-25% of the cost of these purchases will be applied to your account and can be applied to your Section 529 Plan through Solomon Smith Barney or Fidelity Investments.

As always, if you should have any questions concerning the above or have a question as to how this will affect your estate, please contact us at any time.