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Education Planning

You don’t have to go far or long to hear or read about the rising costs of attending college.

It’s easy to lie awake at night wondering how you will be able to help your children when they’re ready to start their education.

Colleges often provide financial aid for families who can’t afford all the costs, but it’s next to impossible to know in advance how much money a family will receive, and in most cases college estimates of a family’s financial need are far lower than the actual need.

So what’s a good approach?

The best thing you can do is to start now:

Start informing yourself about a variety of college savings plans in which the money you deposit is invested and will grow over the years and from which you can withdraw money tax-free for college expenses.

Start looking at your household expenses and the family income, to get a realistic idea of how much money could be put toward school costs on a monthly basis when your child goes off to school.

More important--start thinking now—even if you’ve just had your first baby—about how much you can set aside each week, month, or year toward education expenses.

529 Plans

A 529 plan is a state-sponsored, tax-advantaged way to invest significant assets toward the cost of higher education. Each state offers at least one 529 plan, and each plan has a program manager. Plans vary by state and differ on costs, program features and investment selection. You do not have to live in a state to participate in that state’s 529 plan. (However, you should check to see if your home state offers a plan that provides its taxpayers with state tax and other benefits only available if you invest in the home state plan.)

ESAs, also known as Coverdell accounts, are another tax-advantaged education savings option. Unlike with 529 plans, withdrawals can be used for qualified elementary and secondary education expenses as well as for postsecondary school. There are, however, qualifications and restrictions to consider before opening an ESA.

To help alleviate your worry, inform yourself about education tax credits that you may be eligible for during the four years of undergraduate school. 

If your income allows enough savings, learn about putting money in custodial accounts or trusts to facilitate college funding.

And remember that if your children take out Federal student loans to finance their education, there are a variety of payment plans that help the graduate manage both living expenses and loan payments.

Statistics have shown that over the course of their lives individuals with college degrees earn considerably more than those without. And, of course, learning how to think and write and wrestle with ideas is invaluable. So think long term and remember that, despite its cost, a college education is worth it..