| The cost of Higher Education is currently outpacing | | | | regular taxes and a 10 percent penalty may |
| inflation. The College Board estimatescollege costs | | | | beimposed on the earnings. |
| grew at a rate of 9.8 percent at four-year public | | | | Coverdell Education Savings Accounts (formally |
| colleges and universities and at an average of 5.7 | | | | Educational IRAs) allow parents,grandparents and |
| percent at private four-year colleges and universities | | | | others to contribute cumulatively up to $2,000 a year |
| for the 2004-2005 school year. At the current rate of | | | | for qualifiedelementary, secondary school and higher |
| college inflation, parents of newborns can expect | | | | education expenses of a child. Withdrawals from a |
| average 4-year college expenses ranging from | | | | Coverdell Education Savings Accounts are Federal |
| $115,396 for (on-campus) public colleges to $221,562 | | | | income tax-free if used for qualifiedexpenses such as |
| for (on-campus) private colleges. | | | | tuition, room and board. Beneficiaries of the Coverdell |
| With the escalating cost of higher education, it | | | | can be transferred toanother family member to pay |
| becomes critical to plan ahead in order tosend your | | | | for educational expenses. If the account is not used by |
| children to the college of their choice. There are | | | | age 30or the funds are not used for higher education, |
| several options available to helpfund your child's college | | | | regular income taxes and a 10 percent penaltymay be |
| expenses. Three options include 529 Plans, Educational | | | | imposed on the earnings. |
| IRAs and | | | | Custodial Accounts (UGMA/UTMA) are created for a |
| Custodial Accounts, which can be established to help | | | | minor usually at a mutual fundcompany or brokerage |
| prepare families for the increasing costof higher | | | | firm. This account provides a simple way to transfer |
| education. | | | | property to aminor without the complications of a |
| 529 Plans (technically known as qualified state tuition | | | | formal trust. When the child reaches age of majority |
| plans) allow parents; grandparents andanyone else | | | | (age 18 or 21 depending on the state), the child then |
| interested in saving for college to contribute money into | | | | has full discretion over the account. Anyearnings on |
| a tax-deferred accountfor higher education. | | | | the account up to $750 are tax free if the child is |
| Regardless of income levels, a donor may contribute | | | | under age 14. Earnings from |
| $11,000 per yearper beneficiary or $55,000 in a single | | | | $750 to $1500 will be taxed at the child's tax rate. |
| five-year period ($110,000 for married couples) | | | | Earnings over $1,500 are taxed at theparent's highest |
| withouttriggering gift taxes. The earnings in college | | | | marginal tax rate (for children under 14 years of age). |
| savings plans grow tax-deferred from Federaltaxes. | | | | For children over 14,the earnings are taxed at the |
| When funds are withdrawn they are received Federal | | | | child's tax rate. |
| income tax-free if used forqualified expenses (tuition, | | | | Determining which approach is best can be a difficult |
| books, room and board). If a child decides not to attend | | | | task. A financial professional can helpyou develop a |
| college,you can defer use of the account, change | | | | disciplined approach to saving for college costs. |
| beneficiaries or withdraw the assets. If the assets | | | | Together, you can determinewhich college-funding |
| arewithdrawn and not used for higher education, | | | | vehicle will work best for your family. |