Student Loan Dodgers

How early is too early to start planning for college? Some financial advisors say that it’s never too early. For parents and parents-to-be who are savers, the only thing you’ll need to take advantage of the tax-deferred college savings plans is the baby!

Federal law requires that all beneficiaries have a birth date and a social security number. If you’re anxious to get started before the baby arrives, you’ll have to make due with plain old, taxable savings accounts. You could also buy savings bonds or treasury securities. While they’re not tax-free, they do have tax advantages of their own.

If you’re not familiar with 529 plans, their name refers to the section of the IRS code that describes them. They’re basically tax-deferred savings accounts that are set up to benefit a particular individual. An individual can be named the beneficiary of multiple accounts.

Most states have elected to set up 529 plans, but there’s no requirement that you participate in your own state’s savings plan. Participating in your state’s plan may offer you additional tax benefits that you will not get if you participate in a different state’s plan.

Pre-paid tuition plans offer another option. Thirteen states offer a pre-paid tuition contract, where parents can purchase a defined number of semesters of college tuition. The tuition contract can be paid at once or over a period of years. Once the contract is paid off, the beneficiary will have the contracted number of semesters paid for as long as s/he attends one of the schools covered by the plan.

In addition to the thirteen state plans, parents can also fund an “independent 529″ plan, that enables their children to attend one of 270 participating private universities or colleges on a pre-paid tuition contract. One caveat with the Independent 529 plan: the contributions for an independent 529 plan may not cover the full cost of attending one of the participating universities.

One thing is certain, however. Saving for college is much easier when time is on your side. The earlier parents start planning for college, the more likely they are to amass the money their children need to attend a university.