School days can be expensive days. The U.S. Department of Education says college costs are increasing at an average annual rate of more than 6 percent. And, according to Trends in College Pricing 2006, tuition and fees for a public college or university average $5,836 per year. For private colleges and universities, the average tuition fees have increased to over $22,000 – that’s just tuition, not room and board, books and supplies, and other expenses.

The U.S. Census Bureau shows people with a bachelor’s degree earn an average of 80 percent more than those with only a high school diploma. Over a lifetime, the gap in earning potential between a high school diploma and that of a higher education degree is more than $1 million. That means if it’s a choice between saving for your child’s college education and getting that big-screen television, you’d be smart to start putting money away now.

I speak to people everyday who either have children or love someone else’s dearly. What better gift can you give than the gift of education? Most of us want our children’s quality of life to be better than our own and a Coverdell ESA or 529 Plan can help meet those goals. You don’t have to be the parent to contribute – grandparents, aunts, uncles, and friends can contribute on behalf of a child.

Coverdell ESAs were created to provide qualified individuals with a flexible alternative when saving for the education of a child under the age of 18. ESAs allow $2,000 annually to be contributed to the account of each beneficiary.

Some of the benefits of Coverdell ESAs include:

 Any growth of assets in an ESA is tax-deferred and may be distributed federally income tax and penalty tax free when used for qualified education expenses associated with elementary, secondary, or higher education.
 Qualified withdrawals may be used to pay for tuition, fees, books, supplies, including computers, and, in certain circumstances, room and board.
 Assets can be rolled from the account of one beneficiary to an ESA of a qualified family member.

529 Plans are available to help families and friends save for a loved one’s future college costs. Some of the benefits of 529 Plans include:

 529 Plans have higher contribution limits than ESAs, allowing greater amounts to be invested for education.
 You make after-tax contributions to the account, but you don’t pay taxes as the account grows.
 As long as withdrawals are used to pay for qualified higher education expenses such as tuition, books, supplies, fees, and certain room and board, your investment earnings are received free of federal income tax.* 

The main goal is to establish a savings plan to provide the money needed to send your child to college. What this boils down to is that whatever sacrifices you (and the child’s grandparents, friends, etc.) might make for college today may pay dividends in the long-term.

For additional information on these and other financial and insurance planning needs, contact me, Dave Harden at (770) 889-2138 or by email at dave@daveharden.com. Or visit my office located at 3615 Hutchinson Rd. Suite 201 in Cumming, GA or on the web at www.daveharden.com.

*Pursuant to the Economic Growth and Tax Relief Reconciliation Act of 2001, effective Jan. 1 2002 through Dec. 31, 2010, unless legislation changes. Earnings must be used to pay for qualified higher education expenses to be federally tax free. The earnings portion of a nonqualified withdrawal will be subject to ordinary income tax at the recipient’s marginal rate plus a 10% penalty.

The information presented in this article does not constitute tax advice. State and local tax laws vary.

Forsyth County Classifieds: Auto Insurance, College Savings, Health Insurance, Homeowners Insurance