Asian Journal- The Filipino-American Community Newspaper

SINCE State Farm* has entered the field of financial services, I’m talking with more families about planning for the future. While families almost always want to talk about retirement, their most immediate concern is saving for their children’s college education.

This is wise. College education will, in most cases, be a family’s second largest expense after home ownership, so it deserves careful planning. Rising college costs make saving even more important.

According to The College Board, Trends in College Pricing 2003, tuition and fees for a public college or university average $4,694 per year, more than four times what it cost 20 years ago. For private colleges and universities, the average tuition and fees have also increased more than four times to over $19,000. And, that’s just tuition, not room and board, books and supplies, and other expenses.

If those numbers don’t make you want to start putting money aside, I don’t know what will. The good news is that with sound planning and a long-term outlook you have the potential, over the course of 10 to 15 years, to build up a nice college nest egg. The government even has ways to help you reach that goal.

In 1997, Congress gave middle-income parents a new college-planning tool with the Education IRA, now called the Coverdell Education Savings Account (ESA). Contributions to an ESA are limited to $2,000 per year. Parents, grandparents, aunts, and uncles can all contribute until the child reaches 18 years of age, as long as the total yearly contribution for the child doesn’t exceed $2,000.

While contributions to an ESA are not tax deductible, earnings accumulate tax deferred. Even better, when you draw the money out to start paying for qualified education expenses, those distributions are tax free.1

You’d be surprised how a program like that can help. If you have an 8-year-old child — and thus have ten years to save for college — an investment of $100 per month at an 8 percent annual rate of return would create a nest egg of $18,295 when the child turns 18. These figures are based on the value of the investment with an 8 percent fixed rate of return and do not represent any particular investment. While such rates of return may not be representative of investments currently or historically available, this hypothetical situation is added for illustrative purposes only and reinforces that starting early can be significant.

That’s good for any investor to know, especially if you want to invest in mutual funds, which contain a certain element of risk. Disciplined investors know that while the stock and bond markets do fluctuate, over time they have historically produced a greater rate of return than other types of investments that carry lower risk.

As with any investment, saving for college takes preparation, some guidance, and, in many cases, sacrifice. Americans have traditionally been more than willing to make that sacrifice to secure a better future for their children. By setting up a plan with earning potential, we can help our children fulfill their learning potential.

There is no assurance that any investment will achieve its investment objectives. Past performance is not indicative of future performance. Investment return and principal value will fluctuate and the investment, when redeemed, may be worth more or less than its original cost.

Sponsored by State Farm VP Management Corp., One State Farm Plaza, Bloomington, Illinois 61710-0001, 1-800-447-4930

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( Published on June 27, 2009 in Asian Journal Los Angeles p. C6 )