already realize that there are too many pieces in the college savings puzzle for
us to offer a plan that fits every family. Your particular circumstances determine
what's best for you. However, we can offer some general advice that may help.
|7 steps to saving for college
Establish a savings budget. One of the first
steps you should take in planning for your child's future
college expenses is to establish a savings goal. There
are many very useful college-cost calculators on the
Internet, and we encourage you to utilize them. But
you can also get a rough idea of how much you should
be saving every month just by referring to the chart
below. It shows the monthly savings goal from now through
college graduation for a family with one child expected
to enroll in the average four-year public university,
the average four-year private college or the average
Ivy League college/university.
You can easily adjust these targets based
on the current four-year cost of the college or university
your child expects to enroll in and the amount of savings
you already have set aside for college. Simply compute
the difference between those two figures -- your "savings
gap" -- and estimate a result.
|Monthly savings goal*
|* Assumes 6% annual college
cost increase and 6% annual investment return. Current
costs include approximate average tuition, fees,
room, board and books.
Minimize taxes. Take advantage of the
fact that your child can receive up to $800 in investment
income each year without paying federal income tax (and
at low tax rates above that amount, as long as the "kiddie
tax" doesn't apply). By gifting income-generating
assets into an UTMA, or Uniform Transfers to Minors
Act, account now, or gifting appreciated assets later,
you can effectively shift income and capital gains out
of your higher tax bracket.
The opportunities for tax savings may
be even better if you can employ your child in the family
business. Remember that any assets gifted to your children
are theirs to control when they reach a certain age
under state law and that a student's assets and income
are counted more heavily under financial aid formulas.
Be sure to speak with your tax adviser before making
any tax-related decisions.