Uncle Sam will help me save for my children's education?

Well not directly, but by providing tax-favored college savings vehicles (Section 529 plans) Uncle Sam will make the burden of saving a little easier.

These plans are sponsored and run by the state governments. "Section 529" refers to the section of the Internal Revenue Code where these tax breaks are spelled out.

In general, Section 529 plans come in two varieties -- college savings plans and prepaid tuition plans. College savings plans let parents use their plan funds for college expenses at any college. Parents put the money in (contributions are not tax deductible for Federal income tax purposes, however, they may be deductible for state income tax purposes) and have some control on how the money is invested. The account grows tax-deferred. If the distributions are used for qualified educational expenses the money is distributed tax-free!

Prepaid tuition plans allow parents to lock-in future tuition at in-state public college at present prices. With the college savings plan the account grows based on how well the investments do-there is no guarantee about what the rate of return in the account will be. With the prepaid tuition plan you lock in the cost of future tuition-no more, no less.

We can't cover all the other types of college savings vehicles in this article. A table is included at our website (http://www.financiallifeline.net/) that summarizes ways you can save for post high-school education costs.

Also, you can go to www.collegesavings.org for more information.

Remember, each family's situation is different. In addition, federal and state tax laws frequently change. Consult a tax advisor to find out how a tax-favored college savings plan may apply to your individual circumstances.