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Saving for College: Two great ways

Saving for college is always tops on the minds of parents…and it should be. In 2009, the average annual tuition for a four-year public university is about $6,500. If it's a private school, that yearly tuition jumps to an average of $25,000! That's not even counting room and board. Following are two great ways to help offset some or all of these expenses.

Coverdell Education Savings Account

Formerly known as the Education IRA, the Coverdell Education Savings Account (CESA) helps you save for qualified educational expenses for a designated beneficiary to be used at an eligible educational institution (this includes post-secondary, elementary and secondary schools).

Anyone (parents, grandparents or other interested individuals) may establish an account in the name of the child and contribute up to $2,000 annually if their modified adjusted gross income is less than $95,000 as a single tax filer (or married filing separate) or $190,000 as a married couple filing jointly. Contributions can even be split. For example, the parents and grandparents could each contribute $1,000 to the account each year.

The advantage of the CESA is that contributions are made with after-tax dollars, earnings grow tax-deferred and are tax-free when withdrawn if they are to pay for qualified educational expenses. One disadvantage to keep in mind, however, is that money in this account is considered the student's asset under financial aid formulas.

At Local Government Federal Credit Union, features of this account include no annual maintenance fees and a low opening deposit of just $25. Stop by your local credit union branch or call 888.732.8562 to start saving now.

529 Plans

Another savings vehicle that offers tax advantages is the 529 plan, known as the North Carolina Savings and Investment Program in this state. Offered through the College Foundation of North Carolina, this account can be opened for anyone at any age with as little $25. You then select from a variety of investment options—from conservative to aggressive—that meet your investment objectives, time remaining until college and risk tolerance.

The advantages of this program are that North Carolina taxpayers may qualify for a tax deduction for contributions (consult a tax adviser), account earnings grow tax-free, and there are no federal taxes or state taxes on earnings. Also, withdrawals used for qualified higher education expenses are exempt from both state and federal income taxes. For more information on 529 plans, or to open an account, visit www.cfnc.org.

It's never too early—or too late—to start saving for college, and there's no time like the present! If we can help you explore these, or other, options, give us a call at 877.367.5428.