Saving for college
Author: Caren Cramer

When you are holding your newborn, sending him or her off to college seems like such a distant concept.
But time goes by quickly, with graduation from preschool a mere prelude to the future educational milestones of your child.
In a new report titled “Educational Attainment in the United States: 2004,” the Census Bureau confirms the earning power of higher education. The report shows workers 18 and older with bachelor’s degrees earn an average of $51,206 a year, while those with only a high school diploma earn $27,915. Additionally, workers with an advanced degree make an average of $74,602 annually. In comparison, those without a high school diploma average a yearly income of $18,734.
Many factors shape and affect a family’s ability to save money at all – let alone for college expenses. Joan Bowers, investment representative for Edward Jones’ Hagerstown office, suggests the value of assessing a family’s “total financial picture when determining college savings. We like to look at the entire picture.”
Bowers explains the common philosophy is that “the sooner you can begin to save for these expenses, the better. But there are no rules of thumb.”
It’s important to remember that there is no right or wrong equation for planning to save for your children’s college expenses.
It also is crucial to have a solid understanding of all the costs related to college as you begin to plan. According to The College Board, estimates of college expenses for the 2004-05 school year put total expenses per student for public colleges at $14,640, while private colleges ran $30,295.
While it is easy for a family to be overwhelmed by this reality, it is important to learn about all the plans and investment options to better meet the financial challenges of a child’s college education.

Investment plans
How do you know which investment plan – a 529 savings plan, a uniformed gift or uniformed transfer, or Coverdell Education Savings Account – is best for you?
Whether you are a “do-it-yourself” investor or a client of a financial adviser, these terms can seem as complex as a foreign language. Today, Web sites, articles in personal finance magazines, even tellers at local banks, can help gain information.
Basic knowledge of these plans and options can help put parents on the path toward reaching their saving goals. There are pluses and minuses to each type of plan and to working with various investment firms.
Exercising a little caution and having a solid understanding ensure that investments will grow over time.

529s
A 529 is an education savings plan operated by a state or educational institution. Such plans are usually categorized as prepaid or savings, although some have elements of both.
Each state decides whether it will offer a 529 plan – or possibly more than one – what the plan will look like, and what, if any, investment broker is affiliated with a plan. Anyone can contribute to this savings plan, including parents, grandparents or other family members.
In June 2006, The MetLife/Zogby International Grandparents Poll found that 21 percent of grandparents with grandchildren ages 21 and younger were setting aside funds for college education.

Following are the names and Web sites for 529 plans in Child Guide’s readership area:
 West Virginia: Smart529 (www.smart529.com)
 Virginia: www.virginia529.com
There are three programs available:
o CollegeAmerica (savings/investment program) is sponsored by the Virginia College Savings Plan. But you can invest no matter where you live, and your beneficiary can go to school in any state. However, if you reside in a state other than Virginia, there might be an in-state plan that offers tax and other benefits not available in CollegeAmerica.
o Education Savings Trust (savings/investment program) – VEST program
o Prepaid Education Plan – VPEP program
 Maryland: www.collegesavingsmd.org
There are two college savings plans available:
o Maryland Prepaid College Trust – With the Maryland Prepaid College Trust, you lock in future college tuition at today’s prices at nearly any college nationwide. You also get Maryland state and federal tax benefits.
o The College Investment Plan is a way to give students more educational options and offers many advantages, including investment options with professional management by T. Rowe Price

Overall, a major benefit of investing in a 529 plan is that you get unsurpassed income tax breaks. Your investment grows tax-deferred, and distributions to pay for the beneficiary’s college costs come out federally tax-free. The recently enacted Pension Protection Act of 2006 made this tax-free treatment of this investment permanent.

Coverdell Education Savings Accounts
 A Coverdell ESA is a trust or custodial account set up for the purpose of paying qualified education expenses for the designated beneficiary of the account. These accounts used to be known as Education IRAs.
Funds saved can be applied to qualified expenses such as tuition, fees, books, supplies and equipment required for enrollment or attendance in any elementary, secondary or post-secondary educational institution. In general, the designated beneficiary of a Coverdell ESA can receive tax- free distributions to pay qualified education expenses. The distributions are tax-free to the extent that the amount of the distributions does not exceed the beneficiary’s qualified education expenses.

UGMA or UTMA
The United Gift to Minors and United Transfer to Minor Acts allow for establishment of accounts that are now essentially the same due to recent changes in state laws. Because of these changes, many types of investments – life insurance, stocks, bonds, certificates of deposit, cash – can be deposited into these custodial accounts for minor children. The accounts can be established by anyone and are managed by an adult. An account is set up in the name of the child and is recorded using that minor child’s Social Security number.
Should the account generate interest over the allowable taxable amount, the custodian (typically a parent) is responsible for filing an income tax return on behalf of the minor. The money in these accounts does not have to be used for educational purposes.

Parents’ Investment Account
 A parents’ investment account for college expenses does not afford many of the tax breaks and other benefits of other investment options. These funds can be used for any expenses – not just education – and remain invested at the sole discretion of the parent/owner of the account.

Professional help or do it yourself?
College investment decisions are among the most important ones parents make on behalf of their children. Many families need the expertise and assurance that professionals offer clients.
“We work with families to pick investments that are age-appropriate, that protect from the downside of investing and provide growth opportunities for their savings” Bowers says. “I’ve found that time in the market instead of timing of the market to be key in identifying the best opportunities for family’s investments.”
This type of assistance and advice is typical of what professional investment counselors can offer.
For the do-it-yourselfers out there, there are many resources available:
www.savingforcollege.com. This site compiles and analyzes the information that can help parents and financial professionals better understand the college savings puzzle.
The College Board website (www.collegeboard.com) is another source of information about anything college-oriented, including savings plans.
www.smartmoney.com – Features current articles about college savings basics and plan information in the personal finance section
www.cnnmoney.com – Offers current articles about personal finance, college savings, etc.
www.collegesavings.org – Provides information about state-operated college savings plans

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