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Six Ways to Build Up College Savings - Consider these common investment vehicles

The latest figures show that the cost of college continues to rise (see chart). Depending on your situation, it could easily cost six figures to send just one child through school. So how can you foot the bill? It usually helps to build a college savings fund through astute investments. Of course, there are no guarantees and you must contend with certain risks, but here are six investment vehicles to consider. 1. Securities: If your child is still a tyke, you might allocate some of your investment dollars to securities such as stocks and bonds. Keep in mind, however, that liquidity becomes more of an issue as the child reaches his or her teens. Remember to balance the potential rewards against the inherent risks. By diversifying among different types of equities, you can provide more protection for the family. Note: There are no guarantees against loss of principal. 2. Mutual funds: This is a popular way to save for a child who is years away from entering school. In general, mutual funds provide diversification and professional management. However, the investment return and principal value of mutual funds will fluctuate. Your financial advisers can help you select funds that match your tolerance for risk. 3. Zero coupon bonds: From a college savings viewpoint, the main advantage of zero coupon bonds is that the interest is deferred to maturity, when you receive a lump sum. Thus, this may be coordinated with the time your child will be entering college. Nevertheless, you must report tax on the interest that accrues each year the bonds are held. 4. Certificates of deposit (CDs): A conservative approach toward college savings is to invest in CDs. With a federally insured CD, the principal is effectively backed by the U.S. government. 5. U.S. Savings Bonds: This is another relatively conservative method of investing for college. You might include Series EE or inflation-indexed Series I bonds in your portfolio. You pay only half the face value of the bonds at the time of purchase. Note: If these savings bonds are bought in your child's name, they may be exempt from federal income tax if used to pay for college tuition (within certain limits). 6. U.S. Treasury Bills (T-bills): If you need to generate income quickly, you may decide to invest in T-bills with short-term maturities. T-bills are backed by the U.S. government, and the income is exempt from state and local income tax. Don't forget about the impact of the "kiddie tax." For 2008, a child's unearned income may be taxed at the parents' highest tax rate to the extent it exceeds $1,800. The kiddie tax generally applies to children who are under age 19 or are full-time students under age 24. Finally, you may benefit from programs such as Section 529 plans and other tax-advantaged devices. Section 529 plans generally offer a variety of investment choices. More information is available upon request. Average annual college costs* 2007-2008 2006-2007 $ change % change Public 4-year school in-state $13,589 $12,837 752 5.9 Public 4-year school out- of-state $24,044 $22,811 1,233 5.4 Private 4-year school $32,307 $30,497 1,810 5.9 *Tuition, fees, and room and board only. Source: College Board

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