College Planning

While there are numerous ways to fund a college education, here are several of the most popular:

Mutual Funds

Mutual funds are sold by prospectus. The prospectus contains detailed information about the particular mutual fund's goals, objectives, investment style, charges, and expenses. A prospectus for a particular mutual fund can be obtained from R. Seelaus and should be read carefully before you invest. Investors should realize that return and principal value of shares in a mutual fund, other than a money-market mutual fund, will fluctuate so that an investor's shares, when redeemed, may be worth more or less than their original cost. Investors should also remember that funds whose investments are concentrated in a specific sector may be subject to a higher degree of market risk than funds whose investments are diversified. All mutual funds involve investment risk, including the possible loss of principal.For information on how to choose mutual funds to fund your child's or grandchild's college education, contact us

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Zero-Coupon Treasury Bonds

Zero-coupon bonds work like U.S. Savings Bonds: you buy them at a deep discount and receive the face value at maturity. Most zero-coupon Treasury bonds (often called "zeros") are available with a minimum $1,000 face value. They are backed by the full faith and credit of the United States government. When used for college savings, investors will usually buy them with a maturity date that matches the date that the child will enter college.The issuer makes no interest payments during the life of the security. When it matures, you receive the full face amount, which equals your initial investment plus the interest compounded over the life of the bond. There are many different structures available for U.S. Treasury zero-coupon bonds, including STRIPS, FICOs, and REFCOS.For more information on how zero-coupon bonds can help you fund your child's or grandchild's education, contact us.

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College Financial Aid

FinAid, The Financial Aid Information Page
FinAid offers a wide range of resources. It's well worth a visit on the strength of one of these alone: FastWEB (Financial Aid Search Through the WEB), a database that uses an online questionnaire to match your needs to more than 180,000 private-sector sources of aid. FinAid is maintained by Mark Kantrowitz, author of The Prentice-Hall Guide to Scholarships and Fellowships for Math and Science Students, and is sponsored by the National Association of Student Financial Aid Administrators.

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CollegeNet
CollegeNet is designed mainly to help users search databases for appropriate colleges, but it also offers a financial-aid link to a variety of resources. Information sources found through the links include the Department of Education, the Federal Trade Commission (for avoiding financial-aid scams), and banks offering student loans.


Custodial Accounts (UTMA)
One way to accomplish this is to use a custodial account established under the Uniform Gifts to Minors Act (UGMA) or the Uniform Transfers to Minors Act (UTMA). While the accounts offer certain tax advantages, earnings on these accounts may be subject to the "kiddie tax" if the child is younger than 14 years old. In essence, earnings on the account are taxable at the parent's highest marginal rate. If assets are invested in growth-oriented investments with minimal dividends or interest until the child turns 14, the impact of the "kiddie tax" can be minimized.

In addition, UGMA/UTMA accounts are irrevocable gifts: the money belongs to the child, and control goes to him or her at the age of majority (which varies by state). And UTMA/UGMA accounts reduce your eligibility for financial aid.

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Coverdell Education Savings Account
(Education Savings Account - ESA)

Families may contribute $2000 per year to a special ESA IRA for each child up to age 18. Contributions are nondeductible; but interest, dividends, and capital gains accumulate tax-free until the student reaches age 30. At that time, the funds must be withdrawn and are free of taxes and penalties if used for higher-education expenses. Or they can be transferred to an education IRA for a qualified family member. Contributions are phased out if the contributor's income is $95,000 - $110,000 (single), or $190,000 - $220,000 (joint).

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529 College Savings Plan
New state-sponsored investment programs have special tax status under section 529 of the Internal Revenue Code. A 529 Savings Plan, also known as a "qualified state tuition program" or "QSTP," provides for tax-deferred accumulation of all account earnings until qualified withdrawals for higher-education expenses are made by the student. Withdrawals will be taxed to the student at that time-not to the participant who made the original contributions. 529 Savings Plans feature low minimum contribution requirements and high contribution limits-unlike the Education IRA, which is limited to $500 annual contributions.

*Please be aware there are potential risks and costs associated with 529 College Savings Plans. The exemption of qualified withdrawals from federal income tax will expire on December 31, 2010 unless extended by Congress.