In a report by the Institute for Higher Education, it is stated that by the time a child is ready for college their parents have saved only an average of $9,956. Hardly an adequate sum of money for tuition costs that only seem to get higher each year. Then, of course, there’s the price of books, housing costs, lab fees, etc. More and more, sending our kids to college is feeling like the impossible dream. Luckily, there are many programs in place to help parents to save up for their child’s education. The following is a quick guide to help you navigate the college savings programs that are currently available and to try and help you decide which one is the right one for you.

529-college savings plans

These plans are becoming the popular favorite not only for the flexibility they allow but also for their major tax advantages. Basically, a 529-college savings plan allows a parent to contribute a higher amount of money than most savings plans and still be free of federal and sometimes even state income tax. As long as the money stays within the account and is eventually spent on college related expenses, you as a parent will never be subject to paying taxes on the money.

Also, under the new law signed by President Bush, 529-plans will not be subject to creditors should you find it necessary to file for bankruptcy. Another advantage to this plan is that, unlike some other programs, once your child is ready for college they can attend any accredited college within the United States and as well as many international universities.

Because the money is always considered to be the asset of the parent, not the child, there is little impact on financial aid, should it become necessary. The only real disadvantage of the 529-plan is that the parents will be subject to paying taxes on the money as well as a 10% penalty should the money be withdrawn and not used for educational purposes.