A Plan for the Future
By John Galligan

Investing in your child's education may be the most important investment you'll ever make, but rising tuition costs and taxes can make this a daunting proposition. Fortunately, there are several investment vehicles available to help you save.

A 529 College Savings Plan allows you to work with a financial advisor to choose from several different investment portfolios. Investment earnings grow on a federal income tax-deferred basis, and distributions for qualified educational expenses are federal tax-free through at least 2010. The 529 Plan allows annual contributions up to $11,000 per child or $55,000 in a single year ($110,000 if married filing jointly) as long as there are no further contributions for a period of five years. The 529 Plan has no age limit on the depletion of funds in the account by the beneficiary and the funds can be used for private, state and out-of-state college expenses. Also, if a relative opens a 529 College Savings Plan, the contributions are not factored in when the child applies for federal financial aid. You can change the beneficiary at any time and you can withdraw your contributions and earnings at anytime, for any reason. However, certain tax consequences may apply.

Depending on the laws of the state you live in, favorable state tax treatment for investing in a Section 529 college savings plan may be limited to investments made in a Section 529 college savings plan offered by your home state. As Florida residents we also have the Florida Prepaid College Plan, a 529 plan that guarantees to cover the actual cost of any of Florida's 11 public universities or 28 community colleges. You can transfer the value of the plan to most private colleges in Florida, select technical schools and most out of state colleges, though, depending on the costs of these schools, there may be expenses beyond what the plan would cover. You should also be aware that under the Florida Prepaid College Plan you can cancel your participation in the program for any reason and receive a refund of your contributions, minus a $50 fee, and not including any investment earnings. Florida residents can also participate in the Florida College Investment Plan, a 529 College Savings Plan managed by the Florida Prepaid College Board. The Florida college savings plans are direct programs and not available through a financial advisor.

There are several other investment options to help you save for your child's education as well, including Coverdell Education Savings Accounts, Uniform Gift to Minors Accounts (UGMA) and Uniform Transfer to Minors Accounts (UTMA). Regardless of which savings plan you choose, starting early can improve your position and may provide increased options later. While financial advisors cannot offer tax advice, they can help sort through the available savings options and help determine which plan best suits your goals. Please consult your financial professional for more information.