Is College in Your Family's Future? By Keith Driscoll, Financial Consultant Salomon Smith Barney It is projected that, by 2010, a four-year college education could cost between $85,000 and $400,000, depending on whether you choose a private or state-funded institution. Given the magnitude of this expense, you can't begin to prepare too soon. You may need the help of student loans, but there are other tax-advantaged ways to pay for education. And, you can include your children and their grandparents in the planning process. Here's how: Set up an Education IRA The Taxpayer Relief Act created the Education IRA, allowing $500 annual contributions per child. These contributions, although not tax-deductible, may be withdrawn tax-free as long as they go toward higher education costs. Contribution eligibility is phased out for higher-income individuals and couples. Set up a custodial account under the provisions of the Uniform Gift to Minors Act (UGMA) or the Uniform Transfer to Minor Act (UTMA) For children under the age of 14, the first $700 of income generated from these accounts is tax-free. The next $700 is taxed at the child's own rate, usually 15%. Any income in excess of $1,400 is taxed at the parent's rate. After the child reaches age 14, any income generated by the accounts is taxed at the child's rate. Consider a Section 529 College Savings Plan These state-sponsored savings plans typically have no income restrictions and allow for relatively large contributions that can exceed six figures, in many cases. The funds are invested in a family of pre-selected portfolios according to the age of the student or the years to enrollment in college. While contributions are not federally tax-deductible, they may be deductible on state or local tax returns. Assets in the plan grow tax-deferred, until withdrawn for qualified education expenses (tuition, room and board, and supplies). Penalties apply to non-qualified withdrawals. Coming up Next… Come back for A Lesson on the Education IRA. Meeting Your Goals Contact Keith Driscoll, Financial Consultant, at Salomon Smith Barney with any questions or comments. Please call 800-336-0156, or email keith.p.driscoll@rssmb.com, for a complimentary consultation on college expense funding. Salomon Smith Barney does not provide tax or legal advice. Please contact your tax or legal advisor for guidance. Back to Experts' Advice Join the discussions with other parents and check out Peer Perspectives. Legal Stuff You Should Know

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"You may need the help of student loans, but there are other tax-advantaged ways to pay for education."