By the year 2023, a four-year education at a state university is projected to cost more than $152,000, while a private university could cost more that $314,000. Learning to save for college as soon as possible to avoid the burden of student loans is something to consider. There are several attractive options that parents can utilize when it comes to saving for their children's education. Brief summaries of these options are listed below.

Section 529 Plans
The 2001 tax legislation created a favorable opportunity to fund education. Section 529 Qualified Tuition Programs can be set up for post-secondary education and can be used to fund tuition, housing and books. This is a good way to use the $11,000 annual exclusion for gifts.

Benefits of a 529 Plan account include the following:

There are potential drawbacks to using a 529 Plan. One drawback is that the donor gives up investment control of the funds. The plan administrator decides how the account assets are invested. Another drawback is that if the account is in the child's name it may reduce the child's eligibility for financial aid.

UGMA/UTMA Account (Custodial Account)
A Uniform Gift to Minors Account under the Uniform Transfer to Minor Act is a custodial account that allows an individual to transfer or gift assets up to $11,000 per year to a minor without setting up a trust. Similar to a 529 Plan, other individuals may contribute to the account. A custodial account is one of the easiest accounts to set up and administer, but is irrevocable and also has other drawbacks.

Parents should be aware of the account's flexibility. A custodial account allows withdrawals for any purpose. Therefore, at age 18, or in some states age 21, the child has full control over the account.

Minor's Trust under IRC Section 2503(c)
A Section 2503(c) Minor's Trust is a trust established to hold assets in trust for a child until the child reaches age 21. Normally, for a gift to qualify for the annual $11,000 gift tax exclusion, it must be a gift of a present interest. A gift of a future interest (e.g., the right to the assets at age 21) would not normally qualify for the exclusion. A gift to a Minor's Trust can qualify, however, if it meets the three conditions under which a gift of a future interest to a minor qualifies for the annual gift tax exclusion.

Roth IRA
Another vehicle to save for a child's higher education is contributions to a Roth IRA. Contributions up to $4,000 per year to a Roth IRA grow tax-deferred. Additionally, funds can be withdrawn tax-free after five years if the IRA owner is at least 59 ½.

Assuming the account is open for at least five years, the Roth IRA's 10 percent early-withdrawal penalty is waived for funds withdrawn to pay for higher education expenses; however, ordinary income tax rates will apply.

An additional benefit of the Roth IRA is that the funds stay in the parent's name and if the child decides not to go to college, the funds remain part of the parent's retirement account. Also, unlike a 529 Plan, the IRA owner retains control of the account and has a variety of investment options to choose from.

The problem of a Roth IRA is that there are income limitations. The maximum yearly contribution is phased out for a single individual with a modified AGI between $95,000 and $110,000 and for joint filers with a modified AGI between $150,000 and $160,000. However, a child could set up his/her own Roth IRA assuming that he/she has sufficient earned income.

There are many options that parents can choose from in determining how to save for their children's education. However one thing is certain, the earlier parents begin saving and investing, the more time their investments will have to grow.

Time is one of the parents' most powerful allies when investing for college. Therefore, careful planning now may ease the shock of future college costs.

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