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There are a number of different resources and investment tools available to help plan for the growing costs associated with a college education. Some of these tools include 529 Plans, Coverdell Education Savings Accounts, Custodial Accounts, and traditional savings bonds.

529 Plans
Section 529 College Savings Plans are higher education savings plan trusts established under Section 529(b) of the Internal Revenue Code as "qualified tuition programs." Through these plans, individuals may make investments for the purpose of accumulating savings for the education costs of beneficiaries. The plans include interests in pooled investment funds under trusts established by state or local government entities, as well as higher education savings plan trusts established by states. 529's have investment features and risks similar to mutual funds or variable annuities.

529 plans are administered by individual states and most state 529 plans have open enrollment, allowing both residents and non-residents to participate. Plans differ from state to state and many states offer different contribution limits and investment strategies depending upon the account holder's investment goals. Qualified withdrawals are currently free from federal tax (through the year 2010) without any income limitations or age restrictions.

There are two types of 529 savings plans:

• The Prepaid College Tuition Plan allows the investor to prepay college tuition at current rates. With this plan, one can lock in the current cost of attendance by prepaying college tuition at today's prices. Keep in mind that most plans only guarantee 100 percent coverage if the beneficiary goes to a public in-state college or university. An investor can transfer prepaid tuition contracts to a private or out-of-state school, but they may not receive the contract's full value.
  
• The College Savings Plan operates like a 401(k) plan, except it is funded by after-tax contributions. The plan will invest contributions into mutual funds, stocks, bonds and CDs (may vary by state). Fund strategies differ from plan to plan, so adequate research is necessary prior to investing. Some funds may follow an aggressive growth strategy (stock funds) when the beneficiary is young and later convert to a conservative growth strategy (bond funds) when the beneficiary nears college age.

Coverdell Education Savings Accounts
Formerly known as Education IRAs, ESAs are a tax-advantaged way to save for college. Other than life insurance accounts, the investment options for an ESA are virtually limitless. Like an IRA, however, there are limitations on how much an individual can invest each year, as well as income restrictions on receiving the tax-advantaged investment treatment.

Custodial Accounts
Custodial accounts - Uniform Gift to Minors Act (UGMA) accounts or Uniform Transfer to Minors Act (UTMA) accounts ? are another tax-advantaged tool by which to save for a college education. A parent, grandparent, or other adult generally serves as the custodian for the account and makes all the investment decisions until the child for whom the account was opened turns 18.

Savings Bonds
Backed by the full faith and credit of the United States government, the interest from these bonds is received tax free if they are used for qualified higher education expenses. Interest on Series EE and I savings bonds are also usually exempt from state and local taxes as well.

As you can see, there are a multitude of different college planning choices available. Click here to schedule a consultation with a Olsewski & Associate professional to learn more about mutual funds and to discuss whether a mutual fund investment is right for you.