COLLEGE EDUCATION Q & A

plan for him. The problem is, I've heard that there are lots of different

programs available and don't know what they are. Or which is best. Can you

help? From Elise via e-mail.

A: With the cost of college and technical schools on the rise, the sooner you

can begin saving for your child's future education the better.

For example, according to the figures on a cardboard calculator from American

Century, if your child is age 5 today, the average cost of a four-year

in-state college education when he or she is 18 is projected to be $88,662;

out-of-state four-year college education's are estimated at $132,143; and

private college costs could run $192,221. Those figures are based upon a 5

percent annual increase in the costs of tuition's, fees, room, board and

other expenses over the years.

To have $100,000 by the time your child is 18 means making monthly investments

of $315, if the average annual return on that investment is 10 percent. Or

$425, if the money is earning you 6 percent per year, according to American

Century.

While making a three- to four-hundred dollar a month investment for one

child's future education might sound like a huge nut to crack or even be

impossible, particularly when you're young and just beginning a family, don't

let those figures blow you away. Instead, think of them as cost-of-living

guide posts that show, in black and white, how the costs on everything

typically rises over time.

Then understand that any regular monthly contribution you make to an

investment program, whether it be $50 or $500 a month, is a good habit to get

into. And, that while the cost of a future education may look huge today, you

won't need that entire amount all at one time. So don't let the figures scare

you out of saving for the future.

Although there are a number of ways to save for college, from merely

earmarking the monies in an account you've opened to setting up accounts

specifically for your child, here's a thumbnail overview on three popular

long-term educational investment programs available. Please note there is

much more to these programs that outlined, so make sure to do more homework:

- UGMA/UTMAs . These are Uniform Gift or Uniform Trust for minor accounts and

are set up in a child's, i.e., the minor's name, with the custodian, i.e., an

adult, in control of the money until the child reaches the age of majority in

their state.

What's great about these kinds of accounts is that monies in them can be used

for anything---from a college education to the down payments on new cars,

homes, or whatever---once the child becomes an adult. There is also no limit

on the amount of money that can be invested in them each year, as there would

be if you were opening say an Education IRA. On the other hand, each year

there may be tax consequences on the account. Also, some earnings may be

exempt from federal income tax, and some taxes at the child's or their parent's rate.

- State 529 Plans . Named after the 529 section of the Internal Revenue Code,

monies in these accounts are earmarked to pay expenses at qualified colleges

and institutions.

One nice thing about these programs is that the monies in the accounts can be

transferred to another member of the family. So, if the child this account

was originally set up for decides not to go to college, monies can be used to

fund another siblings education.

As for taxes on earnings in these accounts, they'll be deferred until the

monies are withdrawn.

- Education IRA . Decide to open an Education IRA and you're only able to

contribute $500 per year to it until your child is age 18. And, eligibility

begins to phase out if your adjusted gross income is $95,000, or $150,0090

for those filing jointly.

When it comes time to take this money out, because you've paid taxes on

your dollars before investing them, it comes out tax-free. However, don't

follow the rules regarding this account and there may be penalties to pay.

Like the 529 Plans, these accounts are transferable to other family members.

One thing to keep in mind, if you'd like to set up both an Education IRA and

a 529 Plan for the same child, you won't be able to make contributions to

both in the same year.

For more information about college education costs and planning, American

Century's nifty cardboard calculator is free for the asking by calling

1-800-345-2021, weekdays 7 a.m. to 7 p.m., Central time; the Federal Student

Financial Aid Information Center's toll-free number is 1-800-433-3243,

weekdays 7 Am. to 7 p.m. Central time and their Web site address is

www.fafsa.ed.gov . ; and, check out www.collegeboard.org to learn more about

the college costs.