Planning Ahead: College
By Apryl Chapman Thomas

College. It is a word feared by all parents, especially those with younger children. It is not that you think your child will not be accepted in college, but the root of the fear lies within this question: Will you be able to afford it? All parents have big plans for their child's future, although at the moment you don't think there will ever be an end to diapers and bottles or play dates and toys, and college is usually a part of this big plan. It is estimated that by 2010, four years at a public college in your state will cost around $60,000 (tuition, room and board). Don't give up hope yet, this figure is if you were to pay 100 percent of your child's college expenses. When planning for college, don't overlook scholarships, tuition assistance, or student loans. Other options that could cut down costs include your child electing to attend a community college, living at home, or participating in a work study program. Even with the alternatives, you will still need a plan to be in good shape when the acceptance letter arrives in the mail.

The good news is that it is never too early to start saving for your child's education. According to John Sestina, author of Managing to Be Wealthy: Putting Your Financial Plan and Planner to Work for You, "Parents should start saving when Mom feels the baby kicking. After the birth, they need to begin a regular, disciplined savings deposit with each and every paycheck -- even if it is only a few dollars at first."

Sestina stresses that parents need to ask themselves the following questions as their children get older:

    How many children will go to college?
    What are their current ages?
    How many years until each one enters college?
    How many years will they be in higher education?
    What is the current college cost per year?
     What is the projected increase per year?

Answering these questions will help determine how much needs to be saved.

"The options are readily available, yet the challenge is developing a plan for the child and then following the plan," says Sestina.

Recent tax law changes have paved the way for a number of educational saving alternatives. Tax-free or tax-deferred investments raise your ultimate returns without raising risk levels. With all of the options available today, it may seem confusing at first, but there is one tailored to meet the needs of your family.

529 College Savings Plans
These saving plans are state-sponsored and offer a great deal of flexibility. Specific rules for the 529 vary from state to state. A 529 plan can include stocks, bonds or a combination of both. The earnings on plan investments are not taxed at the federal or state level while they remain in the plan, and you pay no tax when the funds are withdrawn for qualified expenses, such as tuition, fees and books. However, nonqualified withdrawals are not only subject to tax, but a ten percent penalty as well.

"Some states offer more options than others," said Phil Drudy, Esq., CPA of Mintz Rosenfield & Co. LLC, of Fairfield, New Jersey. "Therefore, it is wise to shop around to find a plan that meets your needs and objectives. There are no residency requirements, so you are free to choose a plan offered by any state."

Drudy does stress that out-of-state plans may not entitle you to the same tax benefits that your home state may offer.

"Also beware of plans sold by brokers, versus those sold directly to investors through the state. These plans may charge higher fees, so be sure to understand how the plan operates."

Another benefit of a 529 plan is that the assets can be transferred between family members.

However, there are some disadvantages of a 529 plan. The plan administrator decides the investment strategy for a 529 plan; you have no say in where it should be invested. If you are more of a risk taker in your investments, a 529 plan may not be aggressive enough for you.

Continued in next column...