You just returned from seeing Megan in her first starring role as Dorothy in The Wizard of Oz. Her teachers say she really does have unusual talent.

Megan loves her acting classes and it's starting to look like Broadway, London or the screen might be in her future. You know that getting there will take instruction and college to assure she has a chance to make it. Do you know what four years in New York might cost or how to cover these costs?

Maybe your son Cliff isn't as clear about his career choice but, you still would like him to have an education beyond high school. In either case, the expense of a college education is greater than most families can handle without saving over time. Many are struggling with competing financial goals such as retirement planning and daily living expenses at the same time. Fortunately, there are options available, especially if you start when your children are young. Let's look at some things to consider.

First, you are not alone. You might start out by opening a college account for your child when they are born and advertise to the child's relatives that it is open. Let them know that, rather than giving an expensive toy that will go unnoticed after a short time, they can assist in fulfilling the child's lifelong dreams. There are lots of opportunities - birthdays, holidays, coming of age events, graduations - to add to the fund. This is also a chance to demonstrate that saving for future goals is a valuable activity.

Second, use the opportunity to get your child involved with planning and saving for their own future. When you are teaching how they should divide up their allowance or earnings, be sure to include saving for long term goals. Although it might not be appropriate to ask a seven year old to save for college, it certainly is for a fourteen year old. Children who assist in financing their education are more appreciative of the sacrifices required, are less likely to feel entitled and develop better money management skills. Contributions can include saving gifts and earnings from working.

Third, make saving for college part of your overall financial plan. Some parents are tempted to derail their retirement plans by shifting contributions to college funding. This is usually a mistake. If you and your child have not saved enough for college there are other options available such as scholarships, grants and loans. These are not available to finance your retirement. So start your planning early, enlist the help of a financial advisor to design a comprehensive plan and stick with it!

There are several vehicles available for college savings that shelter the growth from taxes. These include Transfers to Minors (UTMA), Coverdell accounts and 529 accounts. All these plans have different restrictions on the amounts that can be contributed and by whom, account ownership, transferability and the types of investments that can be used. Most recently, legislation has made the 529 plans more advantageous. Previously, it was possible to transfer income producing assets using a UTMA and get significant tax savings. This has been restricted

to the point where it is far less advantageous to gift assets to a child, especially when they could use them for something other than an education. You should also consider how account ownership can affect how financial aid calculations.

529 accounts can be very flexible and inexpensive to maintain. Contributions can be tax sheltered. It is even possible to receive the equivalent of a five year gift tax exclusion in a single year. If situations change, the beneficiary can be changed. Almost every state has a prepaid tuition program for state schools and an investment program that can be used to fund any college or university, including those outside the state. Because of the large number of potential investors, the plans have become very competitive. This has resulted in the quality increasing and costs decreasing. As with any other investment, the choice needs to be matched to your comfort level, how the account will be funded, time table and whether you need the flexibility to transfer funds to another recipient. Having options is desirable however, it does make choosing the best plan for your situation more complicated.

Lifetime and Hope Learning Credits are available which can reduce taxes during the time college expenses are being paid. Using the funding plans and the tax credits to lower your tax bill requires coordination of the plans.

Summarizing, college is an expensive endeavor. Most people must plan ahead to be able to afford it. There are a number of resources available to help you. It is beneficial to start early and include your child to help fund their education. We can help you get started and merge it in with your overall plan.