Help Me Invest For The Kids' College!

Ever Heard Of A Qualified State Tuition Program?

By Jennifer Openshaw, Women's Financial Network at Siebert

Question: Hi, Jennifer. I have three children ages 7, 2 and 2 months. I would like your advice on investing for college for the kids. My income is just about $38,000 per year.

-- Delanore O'Connell, Brooklyn, NY

Answer: You'll want to start saving as much as you can, as soon as you can -- no matter how small the amount. Let me illustrate why. Let's say you end up saving $10,000. For simplicity, let's say you happen to collect it all in one year (rather than over time). If you put that money away today, in 20 years it would be worth about $46,000, assuming it is earning a fairly conservative annual interest on stocks of about 8 percent.

But let's say that you put that same amount of money for their college, but you didn't do it for another 10 years. So in this case, it has only 10 years to grow (rather than 20 years in the previous example). In the end it would only be worth about $21,000. That's a $25,000 difference simply because you waited and the money didn't get to keep growing over time.

In New York and in other states, you'll want to check into the state's college savings program, also called a Qualified State Tuition Program. It is similar to a 401(k) in that the funds grow tax-deferred and your child can use it toward any college. And, more importantly, the funds, when they are withdrawn, are taxed at your child's lower income tax rate, rather than your own.

Also, these programs provide professional management from companies you can trust, freeing yourself from the worry and hassle. To request an application and estimate the amount of money you'll need for your child's college education, check out the State of New York's program at http://www.nysaves.org.

Parents in other states can usually find the program by visiting a large search engine such as Yahoo and searching for their state and "college savings." Finally, don't forget that private colleges' costs are considerably higher than public colleges' and will have a big impact on the amount you need to be putting away.

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