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529-plan is that the parents will be subject to paying taxes on the money as well as a 10% penalty should the money be withdrawn and not used for educational purposes.

A UGMA account, or The Uniform Gift to Minors Act

This is a type of custodial account set up in a child’s name by their parent. This is necessary because parents are not allowed to simply shift assets over to their minor children. By setting up this special trust a parent is allowed to basically “gift” the money to the account. Even though the child’s name is on the account they are denied access until they are of legal age (either 18 or 21, depending on the state in which they live).

This is done to ensure that the money is safe and securely invested for the time when college tuition becomes an issue. The danger with this account is that once your child does reach legal age, they assume all control of the money within the account. Legally speaking, a parent then forfeits their right to impose that their now adult child spends that money on a college education.This can be a problem if your 18 year-old decides that the money would be better spent on a backpacking trip around Europe.

Another downside includes the fact that because the money in the account is considered to be the asset of the adult child, this can have major implications in the pursuit of additional financial aid. On the upside however, a UGMA account costs nothing and are relatively easy to set up. Also, parents and other family members, including the children themselves, are allowed to contribute up to $10,000 annually without having to pay a federal gift tax.

An Education IRA

This is another option for parents to look into. Similar to a standard individual retirement account, it allows parents to contribute money for each child they have under the age of 18. Although the contributions made to this account aren’t tax deductible, parents will avoid having to pay taxes on the total amount within the account as long as the money is eventually spent on such things as tuition, books, room and board, and other college related expenses.

The nice thing about this account is that if the money hasn’t been withdrawn and used for any college related expenses by the time a “child” has reached the age of 30, the money can be rolled over to the education IRA of another family member. If this is not an option, the money within the account would then be considered taxable and also subject to a 10% penalty.

One of the disadvantages to this type of account is that there are strict income limits as to who will qualify. Also, individuals are seriously limited to the amount of money they can contribute each year. This means for all your contributions, there’s a very real possibility that you still won’t have enough to finance your child’s education.

Credit Card Rebate and Affinity Programs

This is an interesting concept that takes advantage of something that we Americans do best without really even trying…. spend money. The way this program works, is that you enroll in the web-based affinity program of your choice and register your credit card. Some of the more popular programs are Upromise, Babymint, and EdExpress.

These affinity programs have cut deals with thousands of popular stores and companies so that they are able to track your spending. The way it works is every time you use that registered credit card, the program will then provide a rebate in the form of a tuition benefit of some kind. This kind of program is a fairly painless way to save money since all you’re really doing is spending money you would normally spend anyway.

It’s also nice because there are no restrictions as to who can sign up for the program to benefit the child (i.e.-grandparents, aunts, uncles). The downside to this program however, is that although when it comes to saving money for college, every little bit helps, it is highly unlikely that you will be able to completely pay for your child’s education by a rebate program alone.

Although there’s no disputing that saving for college is a challenging endeavor at best, it isn’t as impossible as it might seem. The good thing about the above mentioned savings plans is that you can use many of them in conjunction with each other (a 529-plan and an education IRA, for example). Usually the only restriction about combining savings plans is that you don’t contribute to more than one plan a year. Just make sure to do all your homework and get all the facts before investing your money anywhere. And always remember, it’s never too soon to start.