As a caring parent, you want the best for your children, especially when it comes to their education.

For the 2004-2005 school year, the average cost of tuition, books, supplies, and room and board was $11,354 at a four-year public college and $26,057 at a four-year private college, according to the College Board.

529 Savings Plans and the Coverdell Education Savings Account offer you two excellent ways to accumulate assets for projected higher education costs.

A 529 Savings Plan is a type of plan named for the section of the IRS Code where the plan is explained. These plans offer estate planning advantages, and their tax benefits were enhanced by the 2001 tax law changes.

Here are a few of the key benefits: 

• Contribution limits are extremely high. Depending on your state of residence, you may be able to contribute more than $250,000. Some states even allow you to take a tax deduction on your contribution. 
• All earnings in a 529 Savings Plan accumulate free from immediate taxation.* As long as the money is used for higher education costs, it can also be withdrawn free from federal taxation. 
• Most plans offer a great deal of flexibility, from making investment choices to changing your beneficiary to determining how to spend the assets. 
• A 529 Savings Plan has no annual income eligibility limits.

Another good tool to supplement your education savings is the Coverdell Education Savings Account, formerly the Education IRA. These accounts have been greatly enhanced by the recent tax law changes. Here are a few of the key benefits:

• You can make much higher contributions than you could to an Education IRA.
• You have the flexibility to fund your Coverdell with a wide range of financial products, including mutual funds, individual securities, and bank Certificates of Deposit. 
• If needed, you can access your assets to pay for elementary and secondary school expenses. 
• All earnings grow federal tax-free for as long as they remain in the account. 
• If assets are withdrawn for "qualified expenses," you do not have to pay any income taxes on those earnings.
• If you're single and your Adjusted Gross Income (AGI) is less than $110,000 annually, you can contribute to a Coverdell.  The limit for married couples is $220,000 annually. 
• Having a 529 Savings Plan does not preclude you from establishing a Coverdell Education Savings Account, provided you meet the eligibility requirements for the Coverdell.

In addition to opening a Coverdell or 529 Savings Plan, you may consider establishing a regular investment account for college planning and contribute to it regularly, such as monthly or quarterly. Contributing regularly enables you to enjoy the benefits of compounding, one of the fastest ways to build wealth over time.

For more complete information about the Coverdell Education Savings Account or the 529 Savings Plan, call your financial advisor to help you create the college-planning strategy that best suits your financial needs.

Depending on residency, 529 Plans may not offer tax benefits. Please contact Scott & Stringfellow for more information, including a description of fees, expenses and risks; and a prospectus, which you should read carefully before investing. Any comments regarding tax implications are informational only; Scott & Stringfellow does not provide tax or legal advice. As always, you should consult your tax or legal advisor.

*Tax provisions allowing federal income tax-free withdrawals for qualified expenses will expire 12/31/10 unless extended.