How Will You Pay For College?

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For the 2012-2013 academic year, the average cost to send your child to California State University is $7,025; $13,200 for the University of California.* And that's just tuition and fees, not room, board, books and incidentals. Tuition and fees at an independent school in California costs an average of $32,100 a year,* and costs go even higher if your child attends an out-of-state school.

With the staggering price tag of higher education looming in front of many parents, it’s hard not to feel overwhelmed. Here are some answers to commonly asked questions to help you save for your children’s future college costs.

Q. Our son just celebrated his first birthday. We’d like to invest a lump sum now to maximize potential growth by the time he turns 18. What is our best option?

A. Consider investing the lump sum in a state-sponsored 529 college savings plan that allows your earnings to grow income-tax deferred. When used to pay for qualified higher education expenses, the money is also free from federal income tax.** In addition, if you are a California resident and choose a California state-sponsored 529 plan, withdrawals for qualified higher-education expenses are free of California state income tax as well. If you select an age-based portfolio for your child, your money is invested in a group of mutual funds that shifts automatically from aggressive investment options to more conservative choices as your child nears college age.

To learn more, talk to your banker, credit union representative, broker or visit for more information about California's 529 plan.*** (Note that you are not required to invest in your own state's 529 plan.)

Q. Our parents want to help their grandchildren pay for college. How can they best do that and still maintain control of the money?

A. Grandparents can also set up and manage 529 accounts. As the plan’s contributor, the grandparents can choose from among the investment options in the plan and retain ownership of the account until it is used for the child’s college expenses. This keeps control in the hands of the donor – in this case, the grandparents – and ensures that the money will only be used for higher education-related expenses. In addition, federal law allows generous contribution limits (and in California, contributions are allowed up to a combined maximum in all accounts of $350,000). Should a grandchild not go to college, the grandparents can change the beneficiary of the 529 account to another grandchild.

Q. What if our 529 savings aren’t enough once college expenses actually arrive?

A. Scholarships and financial aid may be options for your child and can help reduce the total bill. Affordable student and parent loans are also options to complete a financial package. Your child’s school counseling office can direct you to resources and explain more about applying for financial aid. You may also request financial aid information from the colleges and universities your child is considering.

* Source:
** Nonqualified distributions are subject to federal and state income tax as well as a 10% tax penalty.
*** Web site is provided for information only; no endorsement is implied.