How to Invest for College

The cost of college is a major fear for new parents, especially with college costs rising and more and more young people choosing to pursue college. Here's how to get started.

	If your child was just born, or is very young, you're in luck. You still have a lot of time to save, and a little bit invested now can become a lot later. The first part of this article addresses those people who have college a long way off.
	Before you start investing for college, make sure that you have no consumer debt. Get on a written monthly budget and a plan to pay off all your credit cards, car loans, and your own student loans. You want compound interest and cash flow working for you, not against you.
	Open a Coverdell ESA if your income falls below the limits ($95,000 for single filers and $190,000 for married filing jointly). If it doesn't, talk to a tax and investment advisor about giving the money to your child so he/she can put it directly into a Coverdell ESA him or herself. You can put up to $2000/year into a Coverdell ESA. A Coverdell ESA will grow tax-free.
	If college is more than 5 years away, invest in good growth stock mutual funds with a long track record. (An S&P 500 index fund is an easy place to start.) $2000/year invested in a mutual fund that returns 12% (the long term average for the S&P 500) from age 0 to 18 will become about $125,000.
	If you still have extra money left over for college investing, consider your state's 529 plan. Make sure, however, that you have control over your investment choices. You do not want to be forced into a poorly performing investment.
	If college is less than 5 years away, the stock market may be too risky. (5 years is the minimum amount of time for investments. Less than 5 years should be considered savings.) You may also have to save fairly aggressively. Put the money into a high yield savings account, CD, or money market account. (However, the same rule applies that you should eliminate your consumer debt first!)

• Teach your child the value of hard work and the rewards it can bring. This will help your child find it easier to work a job while in college (during weekends, evenings, and summers) and pay for a large portion of his or her education him or herself.
• Look into scholarships and grants.
• Avoid college debt! It will chase your child around for many years. Working during college is better than paying off debt afterward.
• Talk to your tax advisor about tax savings.