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Choosing A College Savings Plan

Many parents experience a dilemma in terms of college: they want their children to receive a higher education, but may not be able to afford the price tag. However, with financial aid and a solid savings plan in place, parents can help their children further their educational goals.

Options for Parents

Although a college education is expensive, there are several savings vehicles available to help make it more affordable. It may seem unnecessary to start saving when your child is a newborn, but the sooner you begin, the more time you give compounding to work for you. The following are a few of the most popular college savings options:

Coverdell Education Savings Accounts. These tax-deferred accounts offer plenty of benefits. Anyone can contribute to the account, including parents, grandparents, relatives or friends. However, the total amount contributed per year cannot exceed $2,000. Contributions are allowed until the student reaches age 18, at which time he or she can withdraw the account balance tax-free until age 30 for qualified educational expenses.

Who might benefit: Anyone who wants to invest long-term for a child's education.

529 Prepaid Tuition Plans. Unlike regular 529 savings plans, which are tax-exempt and often provide investment strategies based on a child's age, a prepaid tuition plan allows you to buy shares of tuition at a locked-in rate. You can choose to buy a semester's worth of tuition or pay for all four years. Your shares will still be valid five, 10 or 15 years from now, even if tuition prices continue to skyrocket.

Who might benefit: Parents who want to lock in at a certain rate and are looking for a no-risk investment.

Custodial Accounts. For parents with higher incomes, a custodial account offers increased savings flexibility. The money you save is not limited to educational expenses. However, because they are considered a student asset, these accounts can affect the amount of financial aid awarded if used for education.

Who might benefit: Parents who are unsure if their child will attend college but want to save for future expenses.

Investing for the Future

Higher education is a meaningful gift that will stay with a student forever. For more information on college savings vehicles, contact an investment professional at PeoplesBank.

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