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It's rarely too soon to start accumulating cash for college expenses. This is especially true for financially successful parents. Your success makes it difficult for your child to qualify for scholarships, grants, or loans based upon financial need.
The simplistic answer to the problem is to start now and to save enough money to pay for all college costs. This solution seems straightforward enough. But before starting a savings program, you should learn how some savings methods might be better for you than others. This is especially true because you may be able to reduce your income taxes by choosing the proper savings method.
Some of the methods you should investigate for college savings include:
1) Savings accounts in your name.
2) Savings accounts in your child's name.
3) Education savings accounts (formerly called education IRAs).
4) Prepaid tuition plans (usually sponsored by state governments).
5) Section 529 plans.
The various methods are quite different, and your goal will be to choose one compatible with both your financial and tax situation.
Choosing the wrong method can produce very unsatisfactory results. You might lose control of your cash and end up with your child spending it for everything but an education. Or you might pay taxes instead of tuition with your dollars.
What's a parent to do? Take positive steps today to avoid problems in the future. Learn about college savings plans, and start one suitable for your situation. A suitable plan will enable you to maximize the benefit from tax-sheltered, compounded earnings between today and the day of your first college tuition payment.
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