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Funding college savings

Posted: July 31, 2008 8:30 p.m.
Updated: October 2, 2008 5:01 a.m.
 
Saving for college can be intimidating. Added to this necessity is the current crisis we are facing in our personal lives due to the financial and energy markets.

That being said, we still have to deal with our families’ needs and the annual increasing costs of tuition, fees, room and board for our children and grandchildren.

The latest figures I have is that according to the College Board, these factors costs in 2004-2005 were $11,354 at the average public college and $27,516 at the average private college. And costs are rising about twice as fast as the overall rate of inflation.

Even at today’s rates, putting two children through four years each at public schools could cost about $90,000. Factor in inflation and/or a private school or a post graduate degree and the costs are daunting. Where do you begin?

Your funding plan could include a patchwork combining scholarships, grants, loans, work-study programs and personal savings. To determine whether your child will qualify for financial aid, use an EFC Calculator (EFC stands for Expected Family Contribution). The Section 529 state college savings plan is a popular savings vehicle. Earnings and withdrawals are federal tax-free if used for college expenses. The funds are transferable to another relative if the designated child does not attend college. Also, plan assets are considered as belonging to the parents/grandparents, not the child, which helps if you seek financial aid. There are other plans available, but none are as secure and flexible as the 529 Plan.

One unique feature of the 529 is that grandparents can fund up to 5 years of contribution limits in one lump sum which removes funds from their estate, reducing estate tax if structured properly. Your options and benefits of the different plans should be discussed with your financial adviser.

Jim Lentini, CLU, ChFC, IAR is president of Lentini Insurance & Investment, located in Santa Clarita. His column represents his own views and not necessarily those of The Signal.

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