Info for Consumers
		Privacy
		Advice@American Express
		Tips, Tools &
		Information
		Consumer FAQs

This Week's Article

Advice Archive by date

Advice Archive by topic

Investment options grow as college costs rise

Even as tuition costs escalate, there is good news for parents of college-bound students: more investment options to help make college affordable.

According to the College Board, tuition and fees at a four-year public university will average $3,510 for the 2000-2001 school year – up 4.4 percent from the previous year. At a four-year private college, those average costs have reached $16,332, an increase of 5.2 percent from the previous year. Of course, expenses for housing, food, books, transportation, activities and incidentals must be added to these sums.

Tuition costs will undoubtedly be even higher for parents with younger children because of an expected annual inflation rate of 4 percent (less than tuition has risen in recent years).

Saving for a college education with IRAs

There are many options to help you afford it all, including the following IRAs. It is especially important to begin planning as early as possible.

Roth IRA. The Roth IRA not only helps build a tax-free retirement fund, but it can help you invest for college expenses as well. Up to $2,000 per year may be contributed, depending on your income. While contributions aren’t tax deductible, you can withdraw them any time free of taxes and penalties. Any earnings in the Roth IRA are available – income and penalty tax free – after you’ve held the account at least five years and you are 59½ or older.

Education IRA. The Education IRA allows a contribution of up to $500 per year for each child under age 18. Contributions are not tax deductible, but contributions and earnings can be withdrawn from the account tax free for eligible expenses such as tuition, room and board, books and supplies.

Traditional IRA. Early distributions from these IRAs (up to $10,000) can be made without the 10 percent early-withdrawal penalty, to pay for college tuition and other qualified education expenses.

Taxable investments

If college for the prospective student is five or more years away, consider investing at least some money in stocks or stock funds. Although typically more volatile in the short term, these investments have traditionally outpaced others over longer periods. If college money is needed within five years, you may want to stay with less risky investments such as short-term bonds, money market mutual funds or certificates of deposit (CDs).

Continue your financial education

Long before your children leave for college, consider meeting with a knowledgeable financial advisor to learn how investments, loans, financial aid, scholarships and other sources may work together in helping to pay for college expenses.

January 18, 2001

American Express Financial Advisors Inc. Member NASD. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker-dealer.

.

Copyright (c) 2000 American Express Company. All Rights Reserved. Users of this site agree to be bound by the terms of the American Express Web Site Rules and Regulations. View Web Site Rules and Regulations and trademarks and Privacy Statement of American Express. See Corporate Entities and Important Disclosures for additional information about the American Express entities who offer products and services on americanexpress.com. American Express Brokerage is offered by American Express Financial Advisors Inc., Member NASD and SIPC. American Express Company is separate from American Express Financial Advisors Inc. and is not a broker dealer.