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Special section 7 Bankrate experts with 7 top tips for '07

Planning for college is a complicated and time-consuming process, says College Money Guru Joseph Hurley. His seven financing rules can help.


7 steps to saving for college

You probably 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

1. 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.
Child's age Average public
(4 yrs. = $50,000)
Average private
(4 yrs. = $124,000)
Average Ivy
(4 yrs. = $166,000)
4 $352$871$1,167
8 $417$1,034 $1,385
12 $544$1,347 $1,804
16 $874$2,167 $2,902

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.

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