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Start College Savings Plan Today

No matter what age your child is, it is never too early or too late to begin your college planning program. The best way to ensure that you will be able to afford ever-increasing college tuition costs is to start a college savings program today.

In recent years, college tuition costs have risen twice as fast as the inflation rate, with no slowdown in sight. Today, the average cost for four years at a private college is over $109,000 and a public university degree for out-of-state student's costs over $65,000. In addition to these statistics, traditional sources of education funding such as scholarships, financial aid, and student loans have become more limited in recent years.

Once you have established how much and when the funds are needed, the next step is to decide how best to invest your money to meet your objectives. Factors in deciding which investment is right for you include the age of your child, the degree of investment risk you are willing to take, your time horizon, and the tax consequences of your investment.

To help you compare the various alternatives, here is a brief description, along with the advantages and disadvantages, of the different investment vehicles available to use for a college savings program. Pay special attention to the College 529 savings plan.

Custodial Accounts

These are accounts set up under the Uniform Gifts to Minors Act (UGMA/UTMA) and have been used by parents to gift money to their children for many years. $13,000 annually ($26,000 for married couples) can be given to each beneficiary without exceeding the annual gift tax exclusion.

Advantages:
• Wide range of securities is available to include in a custodial account.
• Withdrawals are unrestricted and can be used for any purpose.
• No dollar limit for account deposits.

Disadvantages:
• In 2011, Account earnings over $1,900 are taxable at parent's tax rate for kids under 14.
• Student is considered account owner for financial aid purposes.
• Child has control of account at the legal age of maturity.
• Beneficiary cannot be changed.

Education IRA Savings accounts

A new type of IRA account that allows annual contributions of up to $2,000 per child. All earnings in the account grow tax free and assets can be withdrawn for qualified education expenses without taxes or penalty.

Advantages:
• All withdrawals are tax-free if used for qualified education expenses.
• Wide range of securities is available for account.
• Can change beneficiary of the account. [Read More]
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