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Saving for college takes a lot of planning, but because the cost of a college education is rising faster than the rate of inflation, traditional saving vehicles ? like certificates of deposit (CDs) and savings bonds ? just aren?t enough.

Fortunately, there are many tools available to help make the most of the dollars you set aside for your education. How Much Will You Need?
For Students
For Families
????Education Funding Options
????Maximum Annual Contributions by Income

How Much Will You Need?

Educational Funding Analysis from Smith Barney helps take the guesswork out of educational financial planning. This tool will help you determine how much money you will need and how much you should save in order to have adequate funds available when your child is ready for college.

For Students

It is never too early, or too late, to begin saving for college. If you earn your own money from a part-time job, try to put some away before you decide how to spend it. Start out small with maybe 5%, and gradually increase the amount as your earnings allow. As your piggy bank grows, put your savings to work for you. Open a bank account that lets your hard-earned money grow but still offers easy access. Most banking institutions offer traditional savings accounts and CDs that pay interest. And if you are interested in investing, visit the SSB Young Investor Network.

For Families

Saving money is the primary way to prepare for college expenses. Setting aside a certain amount every month or each payday will help build a fund for college. If parent and child begin saving early, the amount you have to set aside each month can be smaller. Regardless of the amount you can afford to save each month, it is important to consider what savings or investments will minimize risk while maximizing the return on your money. The chart below compares some of the most common education funding options:

Saving for College Options*
Funding Options	Education Savings Account	529 College Savings Plans/Prepaid Tuition Plans	Traditional IRA	Roth IRA
Who may establish?	Individual for the benefit of a child under age 18	Any individual	Individual under age 70? by end of contribution year who has earned income or whose spouse has earned income	Individual who has earned income or whose spouse has earned income
Contribution rules	Adjusted gross income (AGI) limits ? see chart below	Contributions are property of the account holder; no AGI limits	No AGI limits	AGI limits ? see chart below
Annual contribution limits	$2,000 per child under age 18	Varies by state	$3,000 or 100% of earned income, whichever is less; limit is combined with Roth IRA contributions	$3,000 or 100% of earned income, whichever is less; limit is combined with Traditional IRA contributions
Deductibility	Nondeductible	Not deductible on federal return; may be deductible on state level; Check with your tax advisor	Depends on AGI and coverage by an employer retirement plan	Nondeductible
Required distributions	Within 30 days after beneficiary reaches age 30	None	Required distributions beginning at age 70?	Required distributions beginning at age 70?
Taxation for education expenses	Tax- and penalty-free when used for qualified education expenses incurred by the beneficiary; ordinary income tax and 10% penalty on earnings when funds are distributed because they were not used for education expenses	Federal tax-free through 2010; may be free of state and local taxes; penalty imposed for non-educational use withdrawals	Ordinary income tax on withdrawals used for qualified higher education expenses incurred by IRA holder or an immediate family member; no penalty regardless of age	Tax- and penalty-free on withdrawals from contribution portion or if account has been held for five years and IRA holder is over age 59?; ordinary income tax on withdrawals from earnings portion when used for qualified higher education expenses incurred by IRA holder or an immediate family member
Education Use	Kindergarten through college	Prepaid Plan:? Usually tuition and fees only; 529 Plan:? All qualified higher education expenses	All qualified higher education expenses	All qualified higher education expenses
Account Transfers	To a family member?s ESA before the original beneficiary reaches age 30	May be transferred to another family member	N/A	N/A

????????*Source: Making the Grade, 2004, Smith Barney

If eligible, you may take Hope Scholarship and Lifetime Learning Tax Credits when using any of the types of funding options listed above for qualified education expenses. Read Tax Benefits for Higher Education for more information about tax credits.

Maximum Annual Contributions by Income
Tax Filing	Adjusted Gross Income	Education Savings Account1	Roth IRA2
Single	$0 ? $95,000	$2,000	$3,000 or 100% of income, whichever is less
	$95,001 ? $110,000	Less than $2,000 (based on income)	Less than $3,000 (based on income)
	>$110,000	$0	$0
Married	$0 ? $190,000	$2,000	?
	$190,001 ? $220,000	Less than $2,000 (based on income)	?
	>$220,000	$0	?
	$0 ? $150,000	?	$3,000 or 100% of income, whichever is less
	$150,001 ? $160,000	?	Less than $3,000 (based on income)
	>$160,000	?	$0

????????¹Source: The Economic Growth and Tax Relief Act of 2001
????????²Source: Making the Grade, 2004, Smith Barney

Citibank can provide you with assistance in obtaining the tools you need to help you save for college. Find out more. Also, saving isn?t the only way to pay for college. Our Financial Aid Options section describes many resources that can help you pay the bill.

THIS INFORMATION IS ONLY A SUMMARY OF TAX PROVISIONS OF THE INTERNAL REVENUE CODE. ALWAYS CONSULT A TAX ADVISOR FOR TAX ADVICE AND COMPLETE DETAILS REGARDING THESE TAX PROVISIONS.

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This entry was posted on Wednesday, March 7th, 2007 at 8:09 am and is filed under Student Loan Center. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.