Starting Your Child's College Fund

Early planning pays off. The time to start saving for your child's college education is now.

Saving for your children's college education is a bigger challenge than ever before. But, like any challenge, the best way to tackle it is to start with a plan -- and start now.

The big money needed for a college education can be daunting, but don't let the numbers dissuade you from trying to save. A little money can go a long way when you start early and contribute regularly. Plus, you'll be investing in both your child's academic and financial future. According to U.S. Census Bureau statistics, college graduates can expect to earn roughly double the salary of those with only a high school education. This alone should be enough incentive to get planning.

How much is enough?
Assuming you are planning for a newborn who will be hitting college age in 17 or 18 years, you will need to save almost $20,000 (in today's dollars) for a two-year in-state program. That number can balloon to more than $275,000 for a four-year bachelor's degree from an Ivy League institution. But it helps to keep in mind:

• More than 40 percent of students opt to attend a two-year college program.
• An in-state public college can cost less than half as much as an out-of-state private school.
• Grants, scholarships, student aid and other kinds of loans are available to ease the financial burden.

Types of savings plans
There are many investment account options. The 529 qualified tuition programs are perhaps the most popular savings mechanisms. They allow qualified persons to grow funds free of federal tax, and depending on the plan, with state tax deductions. Money withdrawn from these accounts for post-secondary education is also not taxed. There are similar education savings accounts that offer similar tax breaks, or other tax incentives.

Most states have several accounts of this kind to choose from, and maximizing your savings through one of them can help you reach your savings goals. Here are some things to consider:

• The type of account you set up could affect your child's eligibility for financial aid.
• Some people want more control over how their money is invested than a 529 or similar plan allows.
• You may want to save money in your name, your child's name, or even the name of a grandparent, depending on state and federal laws, the rules of a given school and your financial situation.
• Tax rules are constantly evolving, so you should consult a qualified financial expert for specific advice on how to get started.

Involve your child
Many parents forget a crucial area of their kids' college plan by not adequately equipping their child with financial knowledge and expertise. Instilling in children a healthy attitude toward money can be just as important as any master financial plan you create. They should be learning from an early age:

• The value of a college education: If children know you view a college education as an important goal and that you have carefully set money aside to help them achieve that goal, there's a far greater likelihood they will do so.
• Ways to start earning income: Working for money, budgeting and saving to buy the things they need, will help children to develop key life skills and enable them to share the cost of their education.
• How to start a savings account: Children should be given the opportunity to open a savings account and start saving at an early age. Through in-home chores, summer jobs, and part-time employment, they can save enough to pay for an entire year of school or more.
• The basics of how credit works: Many students get their first credit card at college. It's wise to teach them about interest rates and how to responsibly pay off their debt before they leave home.