529 College Savings Plans
With mutual funds as the primary investment option, state 529 plans are best for those looking to contribute substantial amounts to a college fund. Earnings are tax-free, as are later withdrawals for qualified education costs. These plans generally are in the parents' names, which means that the plans have minimal effects on the family's eligibility for financial aid. The drawbacks are limited investment options and relatively high fees.

529 Prepaid Plans
A prepaid tuition plan makes the most sense for families that are reasonably certain that their child will attend one of the schools in a state's plan, and that are satisfied with a rate of return that equals the inflation rate for the costs of schools in the plan. Under prepaid tuition plans, you are buying future tuition at a state's public colleges at today's prices. On the downside, payouts from these plans reduce eligibility for financial aid on a dollar-for-dollar basis. In addition, states dealing with especially tight budgets have been raising the costs of participating, and in some cases have been temporarily closing off enrollment.

For a group of approximately 250 private colleges, there are independent 529 plans. They work like state prepaid plans, including the dollar-for-dollar reduction in financial aid eligibility when funds are distributed. Money from such a plan can be rolled over to a state 529 savings plan or a state prepaid plan without penalty.

Coverdell Education Savings Accounts
If you want the most variety in investment options and lower fees, a Coverdell account may make sense. Joint income tax filers with adjusted gross incomes of up to $220,000 can save up to $2,000 a year, tax-free, for education expenses. No plan is without its weaknesses, and for the Coverdell accounts it is the adverse effect on financial aid eligibility because the accounts are in the student's name, not the parents' names.

Custodial Accounts
A custodial account is appropriate for those who want to transfer assets, including securities, to a young beneficiary in order to reduce taxes. However, be forewarned that the beneficiary will have control over the account upon reaching the age of majority. Funds can be taken from the account at any time and for any purpose benefiting the child, not just educational expenses. Withdrawals are taxed at the child's rate.

Savings Bonds
If the 529 plans are the showhorses of financing in higher education, savings bonds are the workhorses. Returns on savings bonds are usually modest, but the investment could not be safer. Savings bonds may be especially attractive to middle- and low-income households that fall within certain income restrictions. For Series EE bonds issued after 1989, and all Series I bonds, at least some of the interest earned on the bonds is tax-free if used for higher education expenses.

These approaches to saving for college are not exhaustive, and the descriptions here only scratch the surface. Professional advice can help a family craft a plan that is best suited to its needs and priorities.

Bill Simon has practiced law in San Diego since 1988. He is a co-founder and managing partner of San Diego Law Firm. Bill was born and raised in Southern California and attended the University of San Diego. Bill received his juris doctorate from the Western State University Law School. Immediately following law school, Bill passed the California bar exam and began practicing law with his partner, Tom Parashos. Bill is credited with building one of San Diego's most innovative and competitive law firms. Bill lives in Rancho San Diego with his wife, Ione, and his three children, Lauren, William, and Max. In his free time, Bill enjoys working out, hiking, USC football, music, and riding his Harley Davidson. In addition to practicing law, Bill is an avid real estate investor.

Bill specializes in business law, wills and trusts and real estate. Bill has handled a variety of legal matters including mergers, acquisitions and liquidations, formation of business entities and representation of businesses of all types, stock and asset purchases, creation of trusts and wills, probate and trust administration. Bill's organization and well- founded management skills provide the foundation for SDLF's efficient and superlative legal services. On top of being an excellent attorney and managing partner, Bill's congenial and approachable personality provides a unique comfort to the office environment. The next time you are in the office, be sure to say hello to Bill Simon.