College costs are rising every year. Planning now will help you maximize your
own resources to meet the rising costs. Putting together a strategy to fund a
college education is often a family affair—a combination of savings from parents, grandparents, and children, loans taken by both parents and students, as well as grants and scholarships.

What is the best way to save for college?

A. Section 529 Savings Plans. These are state savings plans which allow you to put away as much as $268,000 per child - gradually or in one lump sum. The money can be managed by a variety of well-recognized and reputable professionals via traditional mutual fund-like vehicles. Many products also offer model asset allocations that automatically shift the assets of the portfolio in to more conservative investments as the child nears college age. The money grows tax-deferred, and withdrawals for qualified higher education expenses are federal income tax free through at least 2010 (the year the Bush tax law expires). Depending on the state, you may also get a state tax deduction if you contribute to your state's plan.

B. Coverdell (Education IRA) Savings Account. Contributions in to the Coverdell Savings Account are made with after-tax dollars and are limited to $2,000 per child per year. Like a 529 Plan, qualified withdrawals for higher education are tax free. More significant, however, is that this tax-free treatment provision does not expire in 2010 and the definition of "qualified withdrawals" is expanded to include: books and supplies at a qualified elementary, secondary, or post-secondary institution. To qualify for a contribution, the adjusted gross income (AGI) of the contributor must be less than $110,000 if single and $220,000 if married filing jointly.

C. UGMA/UTMA. Until a few years ago, UGMA/UTMA (also knows as "custodial") accounts were the only option for college savers. Even today, they are extremely popular due to the flexibility and ease of establishment. Generally, a parent acts as a custodian to the account which is created for the benefit of a child (i.e. one parent to one child). The account can be funded with almost every common investment vehicle available: stocks, bonds, mutual funds, CDs, or money markets. Contributions are considered an outright and irrevocable gift to the beneficiary minor. Investment income over $1,400 is taxed according to the parent's tax bracket until the child reaches age 14, at which point the child starts filing his or her own taxes. At 18, the child receives full control over the assets in the account, but doesn't have to spend the money on education.

The answer is not necessarily A, B, or C. In many cases, it's a combination of the three or even D. All of the Above. Financial aid eligibility, gift-tax ramifications and other tax consequences all must be considered when beginning a college fund. Developing this strategy to fund your child or grandchild's education can be difficult to accomplish on your own. An International Planning Alliance, LLC Representative can help design, implement, and monitor your present and future concerns. Our mission is to help you enrich your life, and to help provide you and your family with a sound financial plan for reaching your education-funding goals.