It’s the begin­ning of the school year and you’re think­ing about your child’s future edu­ca­tion. Your child is bright and will be going to col­lege, so the time to start plan­ning is now.

Many par­ents begin plan­ning for col­lege early to cre­ate an edu­ca­tion sav­ings account for their child’s edu­ca­tion. How to save for your child’s edu­ca­tion is the big ques­tion that is asked, as there are many dif­fer­ent ways to save for edu­ca­tional pur­poses. One poten­tial prob­lem with an edu­ca­tion sav­ings account is tax­a­tion and asset respon­si­bil­ity as it per­tains to finan­cial aid eligibility.

There are some dif­fer­ent meth­ods par­ents and grand­par­ents can use to save for a child’s edu­ca­tion. It’s impor­tant to con­sider tax­a­tion, eli­gi­bil­ity and growth aspects of the dif­fer­ent sav­ings plans. Many finan­cial advi­sors rec­om­mend plans that are more aggres­sive and risky in the early child­hood years, but con­vert­ing over to more con­ser­v­a­tive tac­tics in the years that are closer to the start of col­lege. One rea­son is that there is less money to risk in the begin­ning, so higher risk invest­ments are accept­able. In years closer to the start of col­lege, any edu­ca­tion sav­ings account risks should be min­i­mized to con­serve the larger amount of sav­ings accumulated.

There are four major meth­ods used to fund col­lege expenses:

1. Sav­ings plans -Coverdell Edu­ca­tion Sav­ings Account (CESA), state oper­ated Sec­tion 529 col­lege sav­ings plan, UGMA/UTMA cus­to­dial account, tra­di­tional or Roth IRA, 401(k)
2. Invest­ments -stocks, sav­ings bonds, life insur­ance, trust funds
3. Bor­rowed cash – loans
4. Grants, gifts and schol­ar­ship money-gov­ern­ment and other schol­ar­ship programs

Some sav­ings plans jeop­ar­dize the child’s abil­ity to qual­ify for var­i­ous grants, gifts or schol­ar­ships based on need because the sav­ings cre­ate too much in the way of assets in the child’s name. This is where a reg­is­tered finan­cial plan­ner can help with deci­sion mak­ing with regard to the var­i­ous types of sav­ings plans. In sim­ple terms, sav­ings earn inter­est while bor­row­ing costs inter­est. Col­lege tuition sav­ings plans should be set up so that the great­est tax advan­tages are real­ized. Sav­ing can cut costs by about half the costs of bor­row­ing, espe­cially when sav­ings accounts are started when the child is born.

Com­mon rec­om­men­da­tions about col­lege tuition sav­ings include:

1. Start early
2. Invest care­fully
3. Diver­sify investments
4. Keep in par­ent names
5. Avoid cap­i­tal gains shortly prior to college
6. Use tax-advantaged accounts

Some pre­cau­tions include keep­ing col­lege tuition sav­ings assets in the parent’s names. If accounts are in the child’s name, once they reach the age of major­ity, they can do what­ever they wish with the accounts. Tax rates may also be more favor­able if assets remain in the parent’s names. High assets in the child’s name may neg­a­tively affect appli­ca­tions for aid, grants or gifts. Stu­dents can file for assis­tance using FAFSA, the Free Appli­ca­tion for Fed­eral Stu­dent Aid. All col­lege tuition sav­ings plans are sub­ject to future changes that Con­gress may imple­ment; always work closely with your finan­cial advi­sor to deal with changes.

No mat­ter which course of sav­ings you select, the objec­tive is to have suf­fi­cient money ready to pay for col­lege expenses that are jump­ing higher at roughly twice the rate of ordi­nary infla­tion. Care­ful plan­ning and con­sul­ta­tion with a reg­is­tered finan­cial advi­sor can help you deal early with poten­tial prob­lems so that this wor­thy goal can be achieved on best terms. For more tips about investing go to http://www.savvywomeninvesting.com.