Virginia Financial Planning Newsroom

Strategies for Funding College Tuition

Growth Stocks and Growth Mutual Funds.
Good investments in the stock market have the potential to provide better returns than fixed-rate investments (such as savings accounts and CDs, which are generally FDIC insured) - if you have time to let the money ride the ups and downs of the market. This is a long-term approach to investing. And remember: What the stock market did in the past is no guarantee of how it will perform in the future.

The word to look for here is growth. When assessing the growth potential of a particular stock, look for long-term appreciation rather than dividends. Growth stocks also allow you to postpone paying taxes on the capital appreciation realized until you sell the stock.

Investing in just one or two stocks is always risky. If you'd like to participate in the growth potential of the stock market with less risk, consider a growth mutual fund. Money invested in such a fund is professionally managed and is usually diversified over many stocks, which helps reduce risk. Also, you can start investing in mutual funds with a relatively small amount of money.

U.S. Savings Bonds (Series EE, Series I).
You need only go as far as your local bank to invest in Series EE or Series I U.S. Government Savings Bonds. The face values of the bonds range from $50 to $10,000. EE bonds are purchased at half their face value. For example, when you buy a $50 bond, you pay $25. I bonds, however, are purchased at face value. The interest rate paid on these bonds varies. EE bonds reach face value in a maximum of 17 years and earn interest for up to 30 years. I bonds also earn interest for up to 30 years, which is paid when the bond is redeemed.

These bonds can offer substantial tax savings if they're used to pay qualified higher education expenses. If all requirements are met, no federal income tax is due on the interest. To get this important advantage, you'll need to follow certain guidelines. Among them: The savings bonds must be issued in 1990 or later and be purchased in one or both parents' name(s)-not the child's. Married taxpayers must file a joint return. The owner must be at least 24 years old before the bond's issue date. The bonds must be redeemed by the owner in the year they're used to pay for qualified higher educational expenses. Qualified higher educational expenses generally include tuition and fees and exclude room and board. Talk to your tax advisor and the person selling you the bond to be sure you've set up the purchase properly. Also, there are income restrictions on who can take advantage of this benefit. You'll need to call the Internal Revenue Service or your tax advisor to verify your eligibility.

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