For the 2006/2007 college year, the annual cost of attendance (known as the COA figure) for four-year public colleges was $16,357 and for four-year private colleges, $33,301. The COA figure includes tuition and fees, room and board, books and supplies, transportation, and personal expenses. (Source: The College Board's 2006 Trends in College Pricing Report.)

The trend of annual college costs outpacing inflation is expected to continue. There are many reasons why colleges find it difficult to hold down price increases from year to year. The main factors are continually increasing salary, maintenance, energy, technology, and recruiting costs, along with the goal of providing students with more sophisticated dormitories, dining halls, recreation and health care facilities, career centers, and campus security.

College savings options
It is important for parents to start putting money aside for college as early as possible. But where...and how? There are many possibilities, each with varied features. For example, some options offer tax advantages, some are more costly to establish, some charge management fees, some require parental income to be below a certain level, and some impose penalties if the money is not used for college.

Here is a brief list of options (which a qualified financial adviser can assist you in selecting).

• 529 college savings plans
• Coverdell education savings accounts
• Custodial accounts (UGMA/UTMA)
• Series EE bonds
• Traditional IRAs and Roth IRAs
• Employer-sponsored retirement plans
• Employee stock purchase plans
• Options unique to business owners
  

There are several factors to considering options:

Tax advantages
Money saved for college goes a lot further when it's allowed to accumulate tax free or tax deferred. To come out ahead in the college savings game, it's wise to consider tax-advantaged strategies.

Kiddie tax
Many parents believe they can shift assets to their child in order to avoid high income taxes. This strategy works best if the child is age 18 or older. If the child is under age 18, the kiddie tax rules apply.

Financial aid
Whether or not a child will qualify for financial aid (e.g., loan, grant, scholarship, or work-study) may affect parental savings decisions. The majority of financial aid is need-based, meaning that it's based on a family's ability to pay.

Predicting whether a child will qualify for financial aid many years down the road is an inexact science. Some families with incomes of $100,000 or more may qualify for aid, while those with lesser incomes may not. Income is only one of the factors used to determine financial aid eligibility. Other factors include amount of assets, family size, number of household members in college at the same time, and the existence of any special personal or financial circumstances.

If a child is expected to qualify for financial aid (and most do), parents should be aware of the formula the federal government uses to calculate aid--called the federal methodology--because there can be a financial aid impact on long-term savings decisions. The more money a family is expected to contribute to college costs, the less financial aid a child will be eligible for.

Time frame
Is the child in preschool or a freshman in high school? Obviously, most college savings strategies work best when the child is many years away from college. With a longer time horizon, parents can be more aggressive in their investments and have more years to take advantage of compounding.

When the child is a toddler up until about middle school (sixth grade or so), we typically recommend putting more money into equity investments because historically, over the long term, equities have provided higher returns than other types of investments (though past performance is no guarantee of future results). Then, as the child moves from middle school to high school, it's usually wise for parents to start shifting a portion of their equities toward shorter-term, fixed income investments.

If the time frame is only a few years, parents will be limited in their choice of appropriate strategies. For example, if the child were in high school, equities normally would not be a preferred strategy due to the short-term volatility of these investments. Similarly, parents would not have enough time to build up cash value in a life insurance policy.

Amount of money available to invest
The amount of money parents have to invest at a particular time might affect their savings strategies. For example, if parents have only a small amount of money to invest, trusts probably aren't the best option because they are typically more costly to establish and maintain than other college saving options. In this case, a Coverdell ESA may be more appropriate.
Control issues

Generally, when parents give money or property to their child, they lose control of those assets. Such a loss of parental ownership can take place immediately, as in the case of an outright gift of stock certificates, or it may be delayed, as in the case of a custodial account or trust. In any event, parents must assess their personal feelings about relinquishing control of assets to their child. Some children may not be mature enough to handle such assets, whereas others can be counted on to use them for college costs.

Discussing a college funding plan with your child
As college expenses continue to rise relative to the means of the average family to pay such costs in full, parents may find it helpful to sit down with their older children and discuss ways to pay for college. For example, parents may want to discuss:

• Whether they intend to fund 100 percent of college costs or whether they expect their child to contribute and, if so, in what amount. For example, parents might convey their expectation that their child contribute a certain percentage of all earnings from a part-time job or a portion of all gifts.
• Whether the child will play a role in the savings strategy. For example, parents who want to gift appreciated stock to their child should convey their expectation that the child will apply all of the gains to college costs.
• Whether any money will need to be borrowed, and if so, how much and in whose name the loan(s) will be obtained. The amount that needs to be borrowed may affect the type of college the child applies to (e.g., public or private, top tier or middle tier).
• Whether there will need to be shared financial responsibility during the college years. For example, the child may need to participate in a work-study program or obtain outside work during the college years.

Communicating these expectations ahead of time can prevent unpleasant surprises and help parents and their children better plan for the expenses that lie ahead. Also, an open discussion can give children an increased awareness of the financial burden their parents may be undertaking on their behalf.

Dilemma of saving for college and retirement
For many parents, especially those who started families in their 30s and 40s, the problem of saving for college and retirement at the same time is a nagging reality. At Lightship Mutual, we generally place retirement planning ahead of college planning for the simple fact that parents have no alternative-financing options for their retirement. On the other hand, their children can potentially earn scholarships, grants, and even take out student loans to self-finance their education.

If saving for both goals is a priority to the client, then we emphasize determining specific time frames and liquidity needs for each goal. This process can be daunting for individuals and typically becomes more manageable with the assistance of a financial planner.

With the current state of our economy, many employers will ponder the idea of reducing employee benefits in order to increase profits. And despite popular belief, many companies do still have defined benefit (pension) retirement plans. So if your employer decides to eliminate the pension plan--or worse goes out of business--then then what happens to your pension?

First of all, let's be clear: Your pension will be secure.

The plan will purchase an annuity for you that will pay your benefits when due (some plans may also let you elect a lump-sum payment). But you'll only receive the benefit you've earned as of the plan's termination date, which could be far less than the full pension benefit you had counted on.

If, however, the plan is underfunded (that is, there aren't enough assets to pay all benefits earned to date), then the fate of your pension depends in part on whether or not your plan is insured by the Pension Benefit Guaranty Corporation (PBGC). Fortunately, most defined benefit plans are covered, but check with your plan's administrator to be sure. When an underfunded plan terminates, the PBGC takes over responsibility for making pension payments.

The PBGC guarantee applies only to "basic benefits"--normal and early retirement benefits, survivor annuities, and disability benefits--earned (and vested) before the plan terminates. If the plan terminates while your employer is in bankruptcy, the guarantee may be limited to benefits earned before the bankruptcy filing.

According to the PBGC, 84% of retirees in recent years received the same benefit from the agency that they would have received from their pension plan.

Be sure to seek help from a qualified financial professional if you have additional questions or concerns.

We know. You're sick and tired of the 9-to-5 grind. You want to escape the commute...escape the water cooler...escape the status meetings. There's got to be a better way right? There's got to be a way for you to build your own business at home.

As we've described before, self employment has it's good, bad, and ugly sides. Similarly, working from home also has its pros and cons. Here's the skinny on using your residential dwelling for formal business activities.

Advantages of Working at Home

• No commute
• You save money
• Tax benefits
• Family benefits
• Launching pad for your business

Imagine rolling out of bed on a cold winter day, and with your hair still disheveled, sliding on your slippers. You get a cup of steaming hot chocolate loaded with marshmallows and stroll into your office, which is located next to your bedroom. Sounds enticing--doesn't it? Well, for many people this is work. And this is one of its advantages.

By working at home you save on commuting expenses and more. Since you already pay the mortgage or rent, you'll have no additional charges for office space. You may even be able to deduct the home expenses associated with the section of your house used as an office. Additionally, you get to spend more time at home with family. And last, but not least, working at home can be a good way to measure the viability of your new business.

Disadvantages of Working at Home

• Home distractions
• Work distractions
• Motivational problems
• Lack of interaction with others
  

If you work at home, you can be easily distracted. If people know you're home they will call you. And don't think that your two-year-old will be able to read the "do not disturb" sign on your door, let alone know what those words mean. If that's not enough, think of how seductive your leather sofa will look in the morning, especially when your favorite talk show or soap is airing. Recall those days when you couldn't motivate yourself to jump in the car and drive to work. Imagine how much harder it will be if your office is next to your bedroom. On the other hand, you may be the type who always thinks about work...particularly now that you're in a business you love. In that case, you might constantly venture into the office when you're bored, or when you want to develop an idea that's popped into your head.

The Lonely Life
A major problem may arise with outgoing, gregarious types. If you like mixing with others, working at home can be awfully lonely. There will also be times when the walls of your home remind you of work. These factors ultimately depend upon your preferences and personality.

Favorable Tax Treatment
If you work from your home, you may receive favorable tax treatment--if, of course, you follow the rules. The portion of your home used for business must be used "regularly and exclusively" for business purposes. Your home office must also be the principal place that you conduct your trade or business, or a place where you regularly meet with clients, customers, or patients. If you meet all of the requirements, you can deduct that portion of your home expenses that would be deductible if incurred in a trade or business and that is allocated to the section of your home dedicated to your business.

For example, if your home covers 4,000 square feet, and your home office occupies 1,000 square feet, you may be able to deduct 25 percent of your home expenses (1,000 / 4,000 = 0.25 or 25 percent).

Caution: The tax implications of a home office are complicated. Also, a home office may affect the tax treatment of the sale of your home.

Check Local Zoning Regulations
Some cities have zoning regulations that prohibit or limit home businesses. Check to see if your locality does.

Don't Quit Your Job...Yet
If you're working now, don't quit too soon. Wait to see if your home business can support you.

Be Professional
Have a fax machine, a separate phone line, and quality bond paper. Remember, if you're not a big business, you can still look like one.

Keep Great Records
You can probably take a deduction for the portion of your home expense dedicated to your business. However, you must be sure to keep thorough records of all your expenses and transactions. Make sure you don't commingle funds. Use company checks to pay for business expenses, for example.

Think About Benefits
If you're not covered under someone else's plan, you'll need health insurance. You can call your local chamber of commerce for information on affordable coverage. In addition to health insurance, you'll need to consider retirement plans: simplified employee pension plans (SEPs),individual retirement accounts (IRAs), or Keogh plans.

Write a Business Plan
Next, you should begin preparation for your business plan. The business plan is the blueprint of your business. This blueprint will guide the future of the business as well as serve as a means to measure its success.

Grow Your Business
To do this, you'll need to actively seek out potential customers and introduce them to your business. Get to know who buys your product or uses your service. What do they have in common? How can you find others with similar needs? Test out your marketing ideas on friends and family, and don't be afraid to leave the house and hit the pavement. Yes, you are the salesperson as well as the owner, manager, and marketer. Finally, focus on your strengths. Do what you do best and hire others to do the rest.


Additional Information
Our favorite small-biz resources include:

• Entrepreneur.com
• Inc.com
• Nolo.com
• StartupNation.com

For millions of Americans, group health insurance offers affordable quality health care. To get the most from this valuable benefit, you need to understand what you have, how lifestyle changes can affect your coverage, and what to do if your coverage doesn't meet your expectations.

Understand What You Have
Get your plan's summary plan description (SPD) from your plan administrator. It gives a detailed summary of your plan--how it works, the benefits it provides, and how those benefits may be obtained or lost. Look for information on:

• Physician choice
• Accessibility of doctor's offices
• Deductibles
• Co-payment requirements
• Maximum out-of-pocket expenses
• Lifetime benefits
• Incentives for using the plan's network of providers
• Exclusions
• Waiting periods
• Prescription benefits
• Maternity benefits
• Dental and vision benefits
• Preventive care programs
• Member rights, including the right to appeal
• Quality reports and ratings from member-satisfaction surveys

Ask Questions in the Beginning
Don't wait for a serious illness or injury to learn what to expect from your group health plan. Now is the time to find out. Take the time to learn the answers to the following questions:

• Do you need prior approval to visit a specialist?
• How does the plan define emergency care?
• How do you get care if you are outside the area?
• What hospitals are in the plan's network?
• Is there a time limit on hospital stays?
• Who decides when you will be discharged?
• Will the plan pay for follow-up care, such as nursing home care or home health care?
• If you have a serious medical problem, will the plan provide someone to oversee care and make sure your needs are met?
• Are second opinions required for surgery? If so, who pays?
• How do you get ambulance service?
• Is there an advice hot line to help decide how to handle a problem that may not require a doctor's visit?

Be proactive
Don't be afraid to ask your doctor questions, and insist on clear answers. If you're concerned that you won't be able to understand or follow a doctor's instructions, bring someone with you or take notes. Take responsibility for your own care. Consider:

• Lifestyle choices and changes you can make to lower your risks or prevent illness (e.g., losing weight)
• The risks and benefits of any tests or treatments
• How you would go about obtaining care after hours

What Happens When You Lose Coverage?
The Consolidated Omnibus Budget Reconciliation Act of 1986 (COBRA) allows you to purchase health coverage under your employer's plan if you lose your job, change jobs, get divorced, or upon the occurrence of other qualifying events. Coverage that you obtain under COBRA can last from 18 to 36 months, depending on your situation.

COBRA applies to most employers with 20 or more workers and requires your plan to notify you of your rights. Most plans require you to make an election for coverage under COBRA within 60 days of the plan notifying you. Follow up with your plan administrator if you don't get a notice, and make sure that you reply within the allowed time.

When you buy the insurance under COBRA, you must pay the full premium amount, plus administrative costs of up to 2 percent. If you were accustomed to sharing health insurance premiums with your employer, you may be in for a shocking expense.

However, if you or any family member have pre-existing conditions, you may not have any other choice, at least until you get into a new group plan. You must remember to pay your premiums on time, or you will lose your coverage. The medical coverage under COBRA must be identical to the coverage you had before. However, employers may drop benefits such as dental care and vision care.

As Your Lifestyle Changes, So Will your Insurance Needs
Review your group health insurance benefits and options when you:

• Get married
• Get divorced
• Have a new child
• Have a child who is no longer dependent on you
• Suffer the loss of your spouse

The information provided by your employer should tell you how you can change benefits or switch plans if needed.

What Can You do if a Claim is Denied?
Your plan administrator has a limited time after you file a claim to tell you if you will receive the benefits. If that is not enough time, you must be notified within a specified time why more time is needed and the date you can expect a decision. Many states regulate claims processing and denial notification to members, so be sure to find out your insurance company's time frames for processing claims, issuing denials, and resolving appeals.

If your claim is denied, you must be notified in writing and given specific reasons why it was denied. If you have no answer in the allotted time, the claim is considered a denial, and you can use the plan's rules for appealing the denial. If you disagree with any claims decision or pre-authorization denial, you can request an appeal.

It's important to understand how your plan handles complaints. Check your health benefits package and your SPD to determine who is responsible for handling problems with benefit claims. Keep records and copies of all correspondence.

What if You are Unhappy with Your Health Care?
If you are in a managed care plan, you can change your primary care doctor if you are unhappy with the relationship. If the plan itself does not satisfy you, you may be able to switch plans. If you are dissatisfied with the managed care plan but prefer to remain in the plan because you want to remain with your physician, file a complaint. You have the right to a fair and timely process for resolving your complaint. If you are still unhappy, speak to your employee benefits manager to help you match your needs with the available plans.

Stay Informed

• Ask for a copy of the member handbook, sometimes called the evidence of insurance or evidence of coverage, to review coverage policies.
• Check to see if your plan has a right-to-privacy policy. Make sure that the plan requires your consent to release any medical information about you to outside agencies not involved with your direct health care or the administration of your health policy, especially your employer.
• Does your plan have a magazine or newsletter? Such a publication can give information on how the plan works and on rules that affect your care.
• Ask how you will be notified of changes in the plan's medical providers or covered services and prescriptions.
• Talk to your plan administrator to learn more about your policy.

At the end of the day, it comes down to one simple fact...The more information you have, the easier it will be for you to make quality health-care decisions.

You've grown tired of commuting to a job where you sit in a cubicle and do someone else's bidding. You fiercely believe you've got a better service, a better mousetrap. You have the knack for being in the right place at the right time, and so you're thinking of self-employment. But how do you determine if this is a pipe dream or an idea worth pursuing?

Can You Handle It?
Whether you're running your own business or working as an independent contractor, you'll soon realize that working for yourself isn't just another job, it's a way of life.

Are you someone who likes a nine-to-five routine and collecting a regular paycheck? When you're self-employed, you must be willing to make sacrifices for the sake of the job. You're going to work long hours, which means that in the beginning you won't have as much time as you used to for leisure activities. And if the cash flow slows to a trickle, you're going to be the last one to get paid.

Can you get along well with all types of people? Entrepreneurship is all about managing relationships--with your clients, customers, suppliers, perhaps even with employees, certainly with your family, and probably with your banker, lawyer, and accountant, too. If you're the type who wants to be alone to do the few things that you're good at, then you should do that--for someone else.

The word entrepreneur is from the French entreprendre, which literally means "to undertake". And you will find yourself undertaking a great deal more responsibility when you are the lifeline of the organization.

Are you a disciplined self-starter? There may be days when you'll have to make yourself sit at your desk instead of going for a long lunch, or (especially if you have a home-based business) place those business calls instead of reading the newspaper.

Finally, do you enjoy wearing many hats? Depending on your line of work, you may be involved in handling marketing and sales duties, financial planning and accounting responsibilities, marketing, administrative and personnel management chores--or all of the above.

Your Dream Come True
Think about how great it will feel to get paid to do what you'd love to do anyway. If you're working for yourself, chances are you'll be doing work that you enjoy. You'll get to pick who you'll work for or with, and in most cases you'll work with your customers or clients directly--no go-betweens muddying the waters. As a result, you may have days when it hardly feels as if you're working at all. Such harmony between your working life and the rest of your life is what attracted you to self-employment in the first place.

Being your own boss means that you'll be in control of all of the decisions affecting your working life. You'll decide on your business plan, your quality assurance procedures, your pricing and marketing strategies--everything. You'll have job security; you can't be fired for doing things your way. As you perform a variety of tasks related to your work, you'll learn new skills and broaden your abilities.

You'll even have the flexibility to decide your own hours of operation, working conditions, and business location. If you're working out of your home, your start-up costs may be reduced. You'll also experience lower operating costs; after all, you'll be paying for the rent and utilities anyway. If the location of your work isn't important (perhaps you're a freelance writer or a consultant), you can live wherever you want. At any rate, if you work at home, you'll greatly reduce your daily commuting time and expense.

If all goes well and you're making money, chances are you can make more than you did working for someone else. And since you're working for yourself, you may not have to share the proceeds with anyone else. The fruits of your labor will be all yours, because you own the vineyard.

On the Other Hand . . .
When you're self-employed, particularly if you're starting your own business, you may have to take on a substantial financial risk. If you need to raise additional money to get started, you may need a cosigner or collateral (such as your home) for a loan. Depending on how much or little work you can line up, you may find that your cash flow varies from a flood to a trickle. You'll need a cash backup so you can pay your bills while you're waiting for business to come in or waiting to be paid for completed work. Since you'll have to pay your own creditors first, this means that sometimes you may eat cereal instead of steak.

Remember that you're not making any money if you're not working. You don't have any employer benefit package, which means that it's going to be hard for you to go on vacation, take a day off, or even stay home sick without losing income. It also means that you'll have to provide your own health insurance and retirement plan. Remember, too, that you can choose your clients or customers, but you can't control their expectations or actions. If you don't come through for them, or if you do something that offends them, you might not get paid for your work.

Because you're working for yourself, you're going to have to take care of everything yourself, from calculating your taxes to watering the office plants. You'll probably need some new skills, such as bookkeeping and filing quarterly taxes. You can learn to do these things yourself--many software programs are designed just for this market--or you can hire others (e.g., an accountant) to take care of them for you. If you're not careful, however, you may find that you're spending more time on the business of being in business for yourself than you are on the work that attracted you to self-employment in the first place.

The Bottom Line
If you can work long and hard, tolerate risk and stress, cope well with potential disaster and failure, and work well alone and with others, then perhaps self-employment is right for you. If not, then perhaps you should hold on to your gig in the cubicle.

Since their introduction over a decade ago, 529 plans have become to college savings what 401(k) plans are to retirement savings--an indispensable tool for helping amass money for your child's or grandchild's college education. Yet it wasn't until 2006, with the passage of the Pension Protection Act, that the most important federal tax benefit relating to 529 plans--tax-free qualified withdrawals--became permanent. So let's take a look at the overall tax treatment of 529 plans.

Federal Tax Treatment
Income tax--The federal income tax treatment of 529 plans is straightforward. There is no income tax deduction for contributions, but contributions to a 529 plan (prepaid tuition plan or college savings plan) grow tax deferred, which means you don't pay taxes on the earnings (if any) each year. And, in 2006, withdrawals used to pay qualified education expenses (called qualified withdrawals) were made permanently tax free--a huge tax advantage, considering the large sums of money that all 529 plans accept.

However, if you have to withdraw money from your 529 plan for reasons other than qualified education expenses (for medical, housing, or emergency purposes, for example), you'll face a double consequence--the earnings portion of the withdrawal will be taxed at the marginal tax rate of the recipient (either the account owner or the beneficiary) and be subject to an additional 10% penalty.

Gift tax--Contributions to a 529 plan are considered "present interest gifts" that qualify for the annual gift tax exclusion, currently $12,000 per recipient per year. So, annual contributions of less than this amount won't trigger gift tax. And there's a favorable twist: Under special rules unique to 529 plans, you can make a lump-sum contribution up to $60,000, elect to spread the gift evenly over five years (effectively making the gift a series of smaller gifts each $12,000 or less), and completely avoid gift tax, provided no other gifts are made to the same beneficiary during the five-year period.

This feature has made 529 plans a popular tool for estate planning purposes, particularly for grandparents. That's because a married couple can make a lump-sum gift to a 529 plan of up to $120,000 ($60,000 from each spouse), elect to spread the gift over five years, and avoid gift tax--all while removing the money from their estate for estate tax purposes. Plus, if one member of the couple also happens to be the account owner of the 529 plan, they'll have the added bonus of being able to retain control over their money.

State Tax Treatment
Income tax--Unlike the federal government, 31 states offer an income tax deduction (typically capped at a certain amount) for 529 plan contributions--Arizona (starting in 2008), Arkansas, Colorado, Connecticut, Georgia, Idaho, Illinois, Iowa, Kansas, Louisiana, Maine, Maryland, Michigan, Mississippi, Missouri, Montana, Nebraska, New Mexico, New York, North Carolina, North Dakota, Ohio, Oklahoma, Oregon, Pennsylvania, Rhode Island, South Carolina, Utah, Virginia, West Virginia, and Wisconsin. Kansas, Maine, and Pennsylvania allow a deduction for contributions to any 529 plan; all other states require that the contribution be made to the in-state plan.

As for tax-free qualified withdrawals, all states follow the federal government and offer this tax benefit (except for the nine states that have no income tax). But one state, Alabama, requires that the withdrawal be made from an in-state 529 plan.

Regarding non-qualified withdrawals--those made for purposes other than qualified education expenses--state laws vary, so consult a tax professional who is familiar with the laws of your state. You may owe income tax on the withdrawal. Also, at one time, before the 10% federal penalty was imposed, states levied their own penalties. If a state's penalty isn't officially "off the books," you might be subject to a state penalty too. Finally, gift tax rules differ from state to state, so make sure you understand your state's rules before making a large contribution to a 529 plan.

A 401(k) plan is an employer-sponsored retirement savings plan that offers you significant tax benefits. Here's how it works...

You contribute to the plan via pretax payroll deductions. Pretax means that your contributions are deducted from your pay, and transferred to the 401(k) plan, before federal (and most state) income taxes are calculated. This reduces your current taxable income because you don't pay income taxes on the dollars you contribute--or any investment gains on your contributions--until you start making withdrawals ("distributions") from the account during retirement.

For example, let's say Riley earns $30,000 annually. She contributes $4,000 of her pay to her employer’s 401(k) plan on a pretax basis. As a result, Riley's taxable income is now only $26,000. She isn’t taxed on her contributions ($4,000), or any investment earnings, until she receives a distribution from the plan.

What's the Deal on the Roth 401k?
Due to recent tax law changes, a new option is appearing on the benefits sheet for many employees: The Roth 401k. The difference is that Roth 401(k) contributions are made on an after-tax basis, just like Roth IRA contributions. As a result, unlike pretax contributions to a traditional 401(k) plan, there is no up-front tax benefit--your contributions are deducted from your pay and transferred to the plan after taxes are calculated. However, distributions from your Roth 401(k) account are entirely federal-tax free if the distribution is qualified, as discussed below.

Many 401(k) plans let you direct the investment of your 401(k) plan account. Your employer will provide a menu of investment options (for example, a family of mutual funds). But it's your responsibility to choose the investments most suitable for your retirement objectives.

When Can I Contribute?
You can contribute to your employer's 401(k) plan as soon as you're eligible to participate under the terms of the plan. In general, a 401(k) plan can make you wait up to a year before you're eligible to contribute. But many plans don't have a waiting period at all, allowing you to contribute via payroll deduction beginning with your first paycheck.

Some 401(k) plans provide for automatic enrollment once you’ve satisfied the plan's eligibility requirements. For example, the plan might provide that you’ll be automatically enrolled at a 3 percent pretax contribution rate unless you elect a different deferral percentage, or choose not to participate in the plan. This is sometimes called a "negative enrollment" because you haven't affirmatively elected to participate--instead you must affirmatively act to change or stop contributions. If you've been automatically enrolled in your 401(k) plan, make sure to check that your assigned contribution rate and investments are appropriate for your circumstances.

How Much Can I Contribute?
There's an overall cap on your combined pretax and Roth 401(k) contributions. In 2007, you can contribute up to $15,500 ($20,500 if you're age 50 or older) to a 401(k) plan. If your plan allows Roth 401(k) contributions you can split your contribution between pretax and Roth contributions any way you wish. For example, you can make $8,000 of Roth contributions and $7,500 of pretax 401(k) contributions.

But keep in mind that if you also contribute to another employer's 401(k), 403(b), SIMPLE, or SAR-SEP plan, your total contributions to all of these plans--both pretax and Roth--can't exceed $15,500 in 2007 ($20,500 if you're age 50 or older). In order to escape IRS penalties, it's up to you to make sure you don't exceed these limits if you contribute to plans of more than one employer.

Can I Also Contribute to an IRA in the Same Year?
Yes. Your participation in a 401(k) plan has no impact on your ability to contribute to an IRA (Roth or traditional). You can contribute up to $4,000 to an IRA in 2007 ($5,000 if you're age 50 or older). But, depending on your salary level, your ability to make deductible contributions to a traditional IRA may be limited if you participate in a 401(k) plan.

What are the Income Tax Consequences of Contributing to a 401(k) Plan?
When you make pretax 401(k) contributions, you don't pay current income taxes on those dollars (which means more take-home pay compared to an after-tax Roth contribution of the same amount). But your contributions and investment earnings are fully taxable when you receive a distribution from the plan. In contrast, Roth 401(k) contributions are subject to income taxes up front, but qualified distributions of your contributions and earnings are entirely free from federal income tax. In general, a distribution from your Roth 401(k) account is qualified only if it satisfies both of the following requirements:

• It's made after the end of a five-year waiting period
• The payment is made after you turn 59½, become disabled, or die

The five-year waiting period for qualified distributions starts with the year you make your first Roth contribution to the 401(k) plan. For example, if you make your first Roth contribution to your employer's 401(k) plan in December 2006, your five-year waiting period begins January 1, 2006, and ends on December 31, 2010.

What About Employer Contributions?
Employers don't have to contribute to 401(k) plans, but many will match all or part of your contributions. Your employer can match your Roth contributions, your pretax contributions, or both. But your employer's contributions are always made on a pretax basis, even if they match your Roth contributions. That is, your employer's contributions, and investment earnings on those contributions, are always taxable to you when you receive a distribution from the plan.

Which Should I Choose: Pretax or Roth Contributions?
Assuming your 401(k) plan allows you to make Roth 401(k) contributions, which option should you choose? It depends on your personal situation. If you think you'll be in a similar or higher tax bracket when you retire, Roth 401(k) contributions may be more appealing, since you'll effectively lock in today's lower tax rates. However, if you think you'll be in a lower tax bracket when you retire, pretax 401(k) contributions may be more appropriate. Your investment horizon and projected investment results are also important factors. A qualified financial professional can help you determine which course is best for you.

Whichever you decide--Roth or pretax--make sure you contribute as much as necessary to get the maximum matching contribution from your employer. This is essentially free money that can help you reach your retirement goals that much sooner.

What Happens When My Employment Ends?
When you (or your employer) terminate employment, you generally forfeit all contributions that have not yet vested. Vesting means that you own the contributions. All of your contributions, pretax and Roth, are always 100 percent vested. But your 401(k) plan may require up to 6 years of service before you fully vest the employer's matching contributions (although some plans have a much faster vesting schedule).

When you terminate employment you can generally leave your money in your 401(k) plan until the plan's normal retirement age (typically age 65), or you can roll your dollars over tax free into an IRA or into another employer's retirement plan.

What Else Do I Need to Know?
Payroll deductions can make saving for retirement easier. The money is "out of sight, out of mind."

• You may be eligible to borrow up to one half of your vested 401(k) account (to a maximum of $50,000) if you need the money.
• You may also be able to make a hardship withdrawal if you have an immediate and heavy financial need. But this should be a last resort--hardship distributions are taxable to you (except for your Roth after-tax contributions), and you may be suspended from plan participation for 6 months or more.
• If you receive a distribution from your 401(k) plan before you turn 59½, the taxable portion may be subject to a 10 percent early distribution penalty unless an exception applies.
• Depending on your income, you may be eligible for an income tax credit of up to $1,000 for amounts contributed to the 401(k) plan.
• Your assets are fully protected in the event of your, or your employer’s, bankruptcy.

A higher salary. More job security. Doing what you love. A chance to give back. Changing careers can be rewarding for many reasons, but career transitions don't always go smoothly. Your career shift may take longer than expected, or you may find yourself temporarily out of work if you need to go back to school or can't immediately find a job. Fortunately, planning for the financial impact can make the transition much easier.

Do Your Homework
You'll want to make sure that you clearly understand the steps involved as well as the financial consequences of a career move. How long will it take to transition from one career to the next? How will changing careers affect your income and expenses, both in the short term and the long term? Will you need additional education or training? If so, how will you cover the expense? How will your career move affect your health, life, and disability insurance coverages?

You should prepare a realistic budget and a timeline for achieving your career goals. And if you haven't already done so, save up an emergency cash reserve that you can rely on, if necessary, during your career transition. It's also a good time to reduce outstanding debt by paying off credit cards and loans.

And here's another suggestion. Assuming it's possible to do so, keep working in your current occupation while you're taking steps to prepare for your new career. Having a stable source of income and benefits will make the planning process much less stressful.

Hands Off Your Retirement Savings
Planning ahead can also help protect your retirement savings. When confronted with new expenses or a temporary need for cash, people tend to look at their retirement savings as an easy source of funds. But raiding your retirement savings, whether for the sake of convenience, to raise capital for a business you're starting, or to satisfy a short-term cash crunch, may severely limit your plans for the future. Although you may think you'll be able to make up the difference in your retirement account later--especially if your new career offers a much higher salary--that may be easier said than done. In addition, you may owe income taxes and penalties for accessing your account funds early.

Get Help From Others Who Have Been There
When contemplating a career move, there's really no substitute for getting help from people who understand the hurdles you'll face when changing professions. Talk to a specialist. Depending on your goals, this may be a mentor, career counselor, small business representative, or an individual who holds a job in your desired profession. A qualified financial professional can also give you insight into the potential impact of a career move and help you take steps to protect your finances.

You want to retire comfortably when the time comes. You also want to help your child go to college. So how do you juggle the two? The truth is, saving for your retirement and your child's education at the same time can be a challenge. But take heart--you may be able to reach both goals if you make some smart choices now.

Know What Your Financial Needs Are
The first step is to determine what your financial needs are for each goal. Answering the following questions can help you get started:

For retirement:

• How many years until you retire?
• Does your company offer an employer-sponsored retirement plan or a pension plan? Do you participate? If so, what's your balance? Can you estimate what your balance will be when you retire?
• How much do you expect to receive in Social Security benefits? (You can estimate this amount by using your Personal Earnings and Benefit Statement, now mailed every year by the Social Security Administration.)
• What standard of living do you hope to have in retirement? Do you want to travel extensively and live the good life, or will you be happy to stay in one place and live more simply?
• Do you or your spouse expect to work part-time in retirement?

For college:

• How many years until your child starts college?
• Will your child attend a public or private college? What's the expected cost?
• Do you have more than one child whom you'll be saving for?
• Does your child have any special academic, athletic, or artistic skills that could lead to a scholarship?
• Do you expect your child to qualify for financial aid?

Many on-line calculators are available to help you predict your retirement income needs and your child's college funding needs.

Figure Out How Much You Can Afford to Put Aside Each Month
Once you know what your financial needs are, the next step is to determine what you can afford to put aside each month. To do so, you'll need to prepare a detailed family budget that lists all of your income and expenses. Keep in mind, though, that the amount you can afford may change from time to time as your circumstances change. Once you've come up with a dollar amount, you'll need to decide how to divvy up your funds.

If Possible, Save for Your Retirement and Your Child's College at the Same Time
Ideally, you'll want to try to pursue both goals at the same time. The more money you can squirrel away for college bills now, the less money you or your child will need to borrow later. Even if you can allocate only a small amount to your child's college fund, say $50 or $100 a month, you might be surprised at how much you can accumulate over many years. For example, if you saved $100 every month and earned 8 percent, you'd have $18,415 in your child's college fund after 10 years. (This example is for illustrative purposes only and does not represent a specific investment.)

If you're unsure how to allocate your funds between retirement and college, a professional financial planner may be able to help you. This person can also help you select the best investments for each goal. Remember, just because you're pursuing both goals at the same time doesn't necessarily mean that the same investments will be appropriate. Each goal should be treated independently.

If You Can't Save for Both, then Your Retirement Takes Priority
As selfish as this may sound...If the numbers say that you can't afford to educate your child and also retire with the lifestyle you expected, then you should ditch the education planning and focus on your retirement. Wow, that's harsh, you say. Well...not exactly. And here's why. The bottom line, is somebody is going to have to make some sacrifices.

Ask yourself this question:

If I do not pay for my child's education, then how will he/she get the money to pay for tuition, books, room, and board?

The answers, of course, are limitless: loans, grants, scholarships, work study, part-time job, resident's assistant, etc. There are billions of dollars floating around out there earmarked specifically for our nation's college-bound youth.

Now, ask yourself another question:

If I do not pay for my own retirement expenses, then how will I get the money to pay for housing, food, health care, leisure activities, travel, etc.?

The answer, of course, is nobody. Sure, you may qualify for a small Social Security payment once a month (and it will be even smaller if you retire before your full benefits age) but even Social Security doesn't kick in until you're 62 years old. And you may also think Medicare/Medicaid are on your side for health care expenses. Think again. You can't tap those resources until you reach full retirement age. (Note: If you were born after 1960, then your retirement age is 67 years old.)

Though college is certainly an important goal, you must focus on your retirement if you have limited funds. With generous corporate pensions mostly a thing of the past, the retirement burden is now on your back. And if you wait until your child is in college to start saving for a looming retirement, you'll miss out on years (possibly decades) of tax-deferred growth and compounding of your money. Remember, your child can always attend college by obtaining outside money, but there's no such thing as a retirement loan!

If you are still not convinced, and utterly unsatisfied with our cold water to the face, then here are some other moves you may want to consider:

• Defer retirement: The longer you work, the more money you'll earn and the later you'll need to dip into your retirement savings.
• Work part-time during retirement.
• Reduce your standard of living now or in retirement: You might be able to adjust your spending habits now in order to have money later. Or, you may want to consider cutting back in retirement.
• Increase your earnings now: You might consider increasing your hours at your current job, finding another job with better pay, taking a second job, or having a previously stay-at-home spouse return to the workforce.
• Invest more aggressively: If you have several years until retirement or college, you might be able to earn more money by investing more aggressively (but remember that aggressive investments mean a greater risk of loss).
• Expect your child to contribute more money to college: Despite your best efforts, your child may need to take out student loans or work part-time to earn money for college.
• Send your child to a less expensive school: You may have dreamed your child would follow in your footsteps and attend an Ivy League school. However, unless your child is awarded a scholarship, you may need to lower your expectations. Don't feel guilty--a lesser-known liberal arts college or a state university may provide your child with a similar quality education at a far lower cost.
• Think of other creative ways to reduce education costs: Your child could attend a local college and live at home to save on room and board, enroll in an accelerated program to graduate in three years instead for four, take advantage of a cooperative education where paid internships alternate with course work, or defer college for a year or two and work to earn money for college.

Using a Retirement Account to Save for a Child's College Education
Although it may be appropriate in a few select situations, we typically discourage paying for college with funds from a retirement account. We especially discourage it if using retirement funds for a child's college education if doing so will leave you with no funds in your retirement years. However, you can certainly tap your retirement accounts to help pay the college bills if you need to.

With the IRA, you can withdraw money penalty free for college expenses, even if you're under age 59½ (though there may be income tax consequences for the money you withdraw). But with an employer-sponsored retirement plan like a 401(k) or 403(b), you'll pay a 10 percent penalty on any withdrawals made before you reach age 59½, even if the money is used for college expenses. There will be income tax consequences, as well.

The short answer is: It depends. If a scholarship is used to pay for tuition, fees, books, or required equipment, then it's not taxed. But if it's used to cover other expenses like room and board, travel, or optional equipment, or if it's awarded as payment for teaching or research, then it's taxable.

But keep this in mind: Scholarships used to cover tuition, fees, or books (making them nontaxable) may impact your ability to claim the Hope or Lifetime Learning credit. That's because these tax credits are based on the amount of tuition and fees you pay, and any tuition and fees paid with a tax-free scholarship can't be counted when calculating your credit.

This rule has the most impact on your ability to claim the Lifetime Learning credit, worth up to $2,000. Because this credit is calculated as 20% of up to $10,000 in tuition and fees, a hefty scholarship applied to these expenses may leave you with less than $10,000 in eligible tuition and fees to count toward the credit. By contrast, the maximum $1,650 Hope credit is based on up to $2,200 in tuition and fees, so even with a scholarship, you might not use up all your tuition and fee expense eligibility.

However, if the scholarship is taxable (for example, in cases where its terms specify that it can't be applied to tuition and related expenses), then the entire amount of tuition and fees can be counted when calculating the Hope or Lifetime Learning credits.

Self-employment. The opportunity to be your own boss. To come and go as you please. Oh and we can't forget...the opportunity to establish a lifelong bond with your accountant. If you're self-employed, you'll need to pay your own FICA taxes and take charge of your own retirement plan, among other things. Here are some planning tips.

Understand Self-Employment Tax and How It's Calculated
As a starting point, make sure that you understand (and comply with) your federal tax responsibilities. The federal government uses self-employment tax to fund Social Security and Medicare benefits. You must pay this tax if you have more than a minimal amount of self-employment income. If you file a Schedule C as a sole proprietor, independent contractor, or statutory nonemployee, the net profit listed on your Schedule C (or Schedule C-EZ) is self-employment income and must be included on Schedule SE, which is filed with your federal Form 1040. Schedule SE is used both to calculate self-employment tax and to report the amount of tax owed.

Make Your Estimated Tax Payments on Time to Avoid Penalties
Employees generally have income tax, Social Security tax, and Medicare tax withheld from their paychecks. But if you're self-employed, it's likely that no one is withholding federal and state taxes from your income. As a result, you'll need to make quarterly estimated tax payments on your own to cover your federal income tax and self-employment tax liability. You'll probably have to make state estimated tax payments, as well. If you don't make estimated tax payments, you may be subject to penalties, interest, and a big tax bill at the end of the year. Oh, and if you do have employees, you'll have additional periodic tax responsibilities. You'll have to pay federal employment taxes and report certain information.

Employ Family Members to Save Taxes
Hiring a family member to work for your business can create tax savings for you; in effect, you shift business income to your relative. Your business can take a deduction for reasonable compensation paid to an employee, which in turn reduces the amount of taxable business income that flows through to you. Be aware, though, that the IRS can question compensation paid to a family member if the amount doesn't seem reasonable, considering the services actually performed. Also, when hiring a family member who's a minor, be sure that your business complies with child labor laws.

As a business owner, you're responsible for paying FICA (Social Security and Medicare) taxes on wages paid to your employees. The payment of these taxes will be a deductible business expense for tax purposes. However, if your business is a sole proprietorship and you hire your child who is under age 18, the wages that you pay your child won't be subject to FICA taxes.

As is the case with wages paid to all employees, wages paid to family members are subject to withholding of federal income and employment taxes, as well as certain taxes in some states.

Establish an Employer-Sponsored Retirement Plan for Tax (and Non-Tax) Reasons
Because you're self-employed, you'll need to take care of your own retirement needs. You can do this by establishing an employer-sponsored retirement plan, which can provide you with a number of tax and nontax benefits. With such a plan, your business may be allowed an immediate federal income tax deduction for funding the plan. You can also generally place pretax dollars into a retirement account to grow tax deferred until withdrawal. You may want to use one of the following types of retirement plans:

• Keogh plan
• Simplified employee pension (SEP)
• SIMPLE IRA
• SIMPLE 401(k)
• Individual (or "solo") 401(k)

The type of retirement plan that your business should establish depends on your specific circumstances. Explore all of your options and consider the complexity of each plan. And bear in mind that if your business has employees, you may have to provide coverage for them as well. For more information about your retirement plan options, consult a qualified tax professional.

Take Advantage of Business Deductions to Lower Taxable Income
Because deductions lower your taxable income, you should make sure that your business is taking advantage of any business deductions to which it is entitled. You may be able to deduct a variety of business expenses, including rent or home office expenses, and the costs of office equipment, furniture, supplies, and utilities. To be deductible, business expenses must be both ordinary (common and accepted in your trade or business) and necessary (appropriate and helpful for your trade or business). If your expenses are incurred partly for business purposes and partly for personal purposes, you can deduct only the business-related portion.

If you're concerned about lowering your taxable income this year, consider the following possibilities:

• Deduct the business expenses associated with your motor vehicle, using either the standard mileage allowance or your actual business-related vehicle expenses to calculate your deduction
• Buy supplies for your business late this year that you would normally order early next year
• Purchase depreciable business equipment, furnishings, and vehicles this year
• Deduct the appropriate portion of business meals, travel, and entertainment expenses
• Write off any bad business debts

Self-employed taxpayers who use the cash method of accounting have the most flexibility to maneuver at year-end. See a tax specialist for more information.

Deduct Health-Care Related Expenses
If you qualify, you may be able to benefit from the self-employed health insurance deduction, which would enable you to deduct up to 100 percent of the cost of health insurance that you provide for yourself, your spouse, and your dependents. This deduction is taken on the front of your federal Form 1040 (i.e., "above-the-line") when computing your adjusted gross income, so it's available whether you itemize or not. The portion of your health insurance premiums that is not deductible there can be added to your total medical expenses itemized in Schedule A.

Contributions you make to a health savings account (HSA) are also deductible "above-the-line." An HSA is a tax-exempt trust or custodial account you can establish in conjunction with a high-deductible health plan to set aside tax-free funds for health-care expenses.

Special rules can apply when your child has unearned income. These "kiddie tax" rules may tax a portion of your child's unearned income at your (presumably higher) marginal tax rate. Legislation signed into law in May expands the potential reach of the kiddie tax rules to college-aged children, prompting many parents to rethink gifting strategies.

Kiddie Tax Basics
Generally, the kiddie tax rules apply when a child has unearned income exceeding $1,700 (2007 figure). What's unearned income? It's income other than wages, salary, professional fees, or any other compensation for services. Interest and investment earnings are considered unearned income, as is taxable gain that results from the sale of an asset.

Prior to the Small Business and Work Opportunity Tax Act of 2007, the kiddie tax rules applied to children under the age of 18. Beginning in 2008, however, the new legislation expands the kiddie tax rules to apply to children who are under age 19, and to full-time students under age 24. There's an exception carved out for any child who earns more than one-half of his or her own support.

Why the Change?
The Jobs and Growth Tax Relief Reconciliation Act of 2003 reduced the tax rate on long-term capital gains and qualifying dividends. Specifically, the act established a 15% tax rate for individuals in the higher tax brackets and a 5% rate for individuals in the bottom two tax brackets. Even more significant is that, beginning in 2008, the tax rate on long-term capital gains and qualifying dividends drops to zero for individuals in the lowest two tax brackets (this zero tax rate remains effective for tax years through 2010).

The zero tax rate applicable to individuals in the lower tax brackets presented a real planning opportunity: transfer appreciated investment assets to your child attending college. Since your child would likely be in the lower two tax brackets, he or she could then sell the assets in the year he or she turned 18, and use the resulting proceeds--tax free--to pay college expenses.

Impact of the New Legislation
By expanding the kiddie tax rules to include full-time students under age 24, the Small Business and Work Opportunity Tax Act of 2007 eliminates or greatly limits this planning opportunity for most families. Starting next year, if your child is a full-time student (who does not earn more than one-half of his or her own support), the kiddie tax rules will kick in if your child sells an investment asset before the year in which he or she reaches age 24. The resulting income--at least the portion that exceeds $1,700 with an adjustment for inflation--will be taxed at your (presumably higher) tax rate, eliminating most or all of any potential tax savings.

A Final Word
The new rules aren't effective until 2008 for most people. So, if you've already transferred investments to a child, or intend to do so, you have a limited window to operate under the old rules. If you have questions, be sure to discuss your situation with a tax professional before the end of the year.

Do you own your own business? If so, then you know how important it is to keep some cash available to pay bills. But assuring adequate cash flow doesn't mean your assets can't do more for you. For example, if you have an infusion of cash that you don't expect to spend immediately, you don't have to let it sit idle. It may make sense to explore alternatives for putting at least some of that money to work. Managing your working capital wisely can help improve your business's overall performance.

Determine Your Time Frame
Before you think about increasing returns on any excess cash, you need to make sure you've adequately forecasted upcoming needs. What looks like excess now could be needed if your cash flow projection is faulty or an emergency arises.

Is your cash flow relatively steady? Does it change dramatically from season to season? Vary from month to month, or year to year? All of these factors will influence whether and how you should put working capital to work.

For money that's likely to be used at any moment, your major objective is to preserve both capital and liquidity. For money that isn't needed immediately--for example, money you plan to use eventually to grow the business or pay off existing debts--you may have additional flexibility to try to increase the return on that money until it's needed.

For Money You'll Use Soon
A high-yield savings account, especially one linked to your checking account, is a relatively straightforward option, and one you may already be using. You may be able to combine your checking and savings balances to meet any minimum balance requirements and avoid monthly fees. A savings account's yield will depend in part on how actively a bank is courting deposits, so it can pay to comparison-shop. Also, check on how many transactions are allowed each month.

If you're a sole proprietor or run a nonprofit organization, you may be able to find an interest-bearing checking account. Otherwise, a sweep account combines a checking account with an investment account that pays interest. With a sweep account, you set a target balance for the checking account. Once transactions have been posted each day, the account automatically sweeps any cash above that target amount into the income-producing account--often a money market account or mutual fund, though you may also be able to choose from a range of investments. Investments are automatically liquidated as necessary and the proceeds moved into the checking account to cover outstanding payments and maintain the target balance, which in some cases may be as low as zero.

A sweep account also may be linked to a line of credit, enabling you to set a zero target balance for one or more checking accounts and borrow to cover checks. Deposits are then automatically used to pay down the line of credit and minimize interest charges.

If You Have a Longer Time Horizon
If you're confident you won't need the money for at least several months--for example, if you're raising capital for a future expansion or equipment purchase--you could explore buying a certificate of deposit (CD) with a term that matches your time frame. You get a guaranteed interest rate, FDIC insurance up to $100,000, and return of your principal when you need it. Or put some money into a short-term CD and the rest into a longer-term investment with a higher yield. If an emergency requires use of the money, you might forfeit interest on only part of the assets.

You also could explore short-term Treasury bills, which can be bought in $1,000 multiples and whose terms range from a few days to six months. T-bills are bought at a discount to their face value; when they mature, you receive the difference between the purchase price and the face value as interest. Treasury notes are available in 2-, 5-, and 10-year denominations. CDs and T-bills can be rolled over if they mature before you need the cash.

A short-term bond fund might offer a higher yield; however, it will not be FDIC-insured. Also, share prices of the fund may go down as a result of interest rate increases, and you could lose principal. Companies in a high tax bracket or with frequent large cash balances might consider tax-exempt bonds or even a custom-tailored money management solution.

If you're a sole proprietor, you have more freedom to invest the money as you might in a personal account--for example, by having an investment account with a specific goal, such as retirement or purchasing office space.

If your child is approaching college age, you may be wondering if an Ivy League education is really worth the steep price of admission. Will a diploma from an elite college guarantee your offspring a bright and prosperous future...or just a pile of debt?

Higher Dollars and Cents
The cost of tuition, fees, and room and board at Harvard University for the 2007/08 year is $45,620. (Source: Harvard Crimson, March 22, 2007) If your child entered the freshman class this September, that would translate into a total cost of $196,628 for four years (assuming a rather tame 5% annual rate of college inflation). And this doesn't include money for books, transportation, and personal expenses!

By comparison, the cost for the 2007/08 year at the University of North Carolina at Chapel Hill, a school widely regarded as a top-notch public college, is $28,684 for out-of-state students and $13,036 for in-state students. (Source: UNC Financial Aid Office) This equals a four-year cost of $123,632 for the out-of-state student and $56,187 for the in-state student (again, assuming a 5% rate of inflation). That's an out-of-pocket savings of $72,996 and $140,441, respectively, compared to the cost of Harvard.

The Debt Factor
The Ivies often note that, while their schools might be expensive, most students rarely pay the full sticker price. But even as Ivy League colleges dole out millions of dollars in need-based aid each year from their huge endowments, non-Ivy private schools and public colleges distribute more merit aid, which is aid awarded on the basis of good grades or some special talent. Up-to-date college guidebooks can tell you how generous each college is in helping its students meet annual costs, and the breakdown of student loans vs. grants.

Still, you won't actually know what your child will receive in the way of "free" grant and scholarship money until he or she actually applies to a particular college. So you won't know for sure how much you or your child might need to borrow. But if your child does require student loans, here's an idea of what he or she will owe each month:

Note: Results are based on a standard 10-year repayment term and a fixed interest rate of 6.8%--the current rate on all new federal Stafford loans.

As you weigh the cost factor, keep in mind that a high amount of debt might impact your child's future major life decisions on job opportunities, living arrangements, graduate school, getting married, and/or starting a family.

What About the Intangibles?
Putting aside cost, there are benefits to an Ivy education that can't be measured in nickels and dimes--the prestige of the name on your child's resume, strong mentoring that can lead to coveted jobs and graduate school spots after graduation, the opportunity to build friendships with future leaders, and an alumni network that can open doors throughout life.

But critics of the "Ivy-at-any-cost" group point to excessive competition at the Ivies. They claim that students are more likely to get individualized attention at other colleges, and note that as time goes on, achievement in the workplace will matter more than the name on your child's resume. Indeed, Warren Buffett, CEO of Berkshire Hathaway and graduate of the University of Nebraska-Lincoln, once stated: "I don't care where someone went to school, and that never caused me to hire anyone or buy a business." What counts most, some CEOs say, is a person's ability to seize opportunities. (Source: Wall Street Journal, Any College Will Do, September 18, 2006)

The Bottom Line
To decide if an Ivy League education is worth it, weigh the cost with the potential long-term economic and life experience benefits. But keep in mind that highly motivated students who are independent thinkers and hard workers will likely do well in life no matter where they attend college. The important thing is to make sure that the match between your child and the college is a good one.

As the cost of a college education continues to climb, many grandparents are stepping in to help. This trend is expected to accelerate as baby boomers, most of whom went to college, become grandparents and start gifting what could be trillions of dollars over the next few decades. Helping to finance a grandchild's college education can bring great personal satisfaction and is a smart way for grandparents to pass on wealth without having to pay gift and estate taxes. So what are the best ways to accomplish this?

Outright Cash Gifts
A common way to help with college costs is to make an outright gift of cash or securities. But this method has drawbacks. If you gift the money directly to your grandchild, he or she might spend it on something other than college. Second, a gift of more than the annual federal gift tax exclusion amount ($12,000 for individual gifts, $24,000 for joint gifts) might have gift tax and generation-skipping transfer tax (GSTT) consequences (GSTT is the tax imposed on gifts made to someone who is more than one generation below you).

Another drawback to outright gifts is that the gifts become assets of the student, and the federal government treats student assets more harshly than parent assets for financial aid purposes. Students must contribute 20% of their assets each year toward college costs, compared to 5.6% for parent assets.

529 Plans
A 529 plan can be an excellent way for grandparents to contribute to a grandchild's college education while simultaneously paring down their own estate. There are two types of 529 plans: college savings plans, which are individual investment-type accounts whose funds can be used at any accredited college in the United States or abroad, and prepaid tuition plans, which allow prepayment of tuition at today's prices for the limited group of colleges (typically in-state public colleges) that participate in the plan. Grandparents can open a 529 account and name their grandchild as beneficiary (only one person can be listed as account owner, though), or they can contribute to an already established 529 account.

A big advantage of 529 plans is that under special rules, grandparents can make a joint lump-sum gift of up to $120,000 ($60,000 for individual gifts) to a 529 account and completely avoid federal gift tax, provided a special election is made to treat the gift as if it were made in equal installments over a five-year period and grandparents don't make any additional gifts to their grandchild during this time.

Significantly, this money is considered removed from the grandparents' estate, even though one grandparent can still retain control over the funds if he or she is the 529 account owner. But there are two things to keep in mind here: (1) if a grandparent contributes money, makes the special election, and then dies during the five-year period, a portion of the gift is recaptured into the estate for estate tax purposes; and (2) funds in a grandparent-owned 529 plan can still be factored in when determining Medicaid eligibility, unless these funds are specifically exempted by state law.

Of course, grandparents can contribute smaller, regular amounts to their grandchild's 529 account instead. Contributions grow tax deferred, and withdrawals used for college expenses are completely tax free at the federal level (and often at the state level).

Another interesting feature of 529 plans is that under current law, grandparent-owned 529 accounts are excluded by the federal government's financial aid formula--only parent-owned 529 plans count. So a grandparent-owned 529 plan won't impact a grandchild's chances of qualifying for aid (however, there's no guarantee this will be the rule in the future because Congress periodically tinkers with the financial aid rules).

Note: Investors should consider the investment objectives, risks, charges, and expenses associated with 529 plans before investing. More information about specific 529 plans is available in each issuer's official statement, which should be read carefully before investing.

Pay Directly to the College
Another excellent way for grandparents to help their grandchildren with college costs is to pay the college directly. Under federal law, tuition payments made directly to a college aren't considered taxable gifts, no matter how large the payment. But this is true only for tuition--room and board, books, fees, and the like don't qualify for this benefit. Aside from the obvious tax advantage, paying tuition directly to the college ensures that your money will be used for education. Plus, it removes the money from your estate.

If you aren't already familiar with the alternative minimum tax (AMT), there's a good chance that your family soon will be. This is because its key figures aren't indexed for inflation. As a result, the AMT continues to snare more middle-income Americans every year. Additionally, because temporary legislative band-aids expired at the end of 2006, our nation's economic stage is set for a dramatic rise in the number of individuals who are affected.

What is the AMT?
The AMT is essentially a separate federal income tax system with its own tax rates and set of rules which governs the recognition and timing of income and expenses. If you're subject to the AMT, you have to calculate your taxes twice--once under the regular tax system and again under the AMT system. If your income tax liability under the AMT is greater than your liability under the regular tax system, the difference is reported as an additional tax on your federal income tax return.

Are You Subject to the AMT?
Part of the problem with the AMT is that, without doing some calculations, there's no easy way to determine whether you're subject to the tax. Key AMT "triggers" include the number of personal exemptions you claim, your miscellaneous itemized deductions, and your state and local tax deductions. So, for example, if you have a large family and live in a high-tax state, there's a good possibility you might have to contend with the AMT. IRS Form 1040 instructions include a worksheet that may help you determine whether you're subject to the AMT (an electronic version of this worksheet is also available on the IRS website), but you might need to complete IRS Form 6251 to know for sure.

AMT Adjustments
Differences between the regular and AMT calculations include:

• The standard deduction and deductions for personal exemptions are not allowed for purposes of calculating the AMT.
• Under the AMT calculation, no deduction is allowed for state and local taxes paid, or for certain miscellaneous itemized deductions.
• Under the AMT calculation, any deduction for medical expenses may also be reduced, and qualifying residence interest (e.g., mortgage or home equity loan interest) can only be deducted to the extent the loan proceeds are used to purchase, construct, or improve a principal residence.
• Special AMT treatment applies to the exercise of incentive stock options (ISOs) and to the treatment of certain depreciation deductions.

AMT Exemption Amounts
While the AMT takes away personal exemptions and a number of deductions, it substitutes a specific AMT exemption amount. The AMT exemption amount that you're entitled to depends on your filing status and income (AMT exemption amounts are phased out for individuals with higher incomes). A patchwork of legislation since 2001 has, along with other AMT provisions, pumped up AMT exemption amounts to stave off a spike in the number of taxpayers caught in the AMT "net." The bad news, though, is that the last legislative patch expired at the end of 2006. Unless Congress passes new legislation, 2007 AMT exemption amounts return to pre-2001 levels, and the number of taxpayers subject to AMT is expected to skyrocket.

Legislative Outlook
Several bills have been introduced in the current Congress relating to the AMT. Proposals range from another one-year patch to full repeal. The problem with repealing the AMT is that it would leave a significant revenue gap (the Joint Committee on Taxation projects that the AMT will account for almost $25 billion in revenue for the 2006 tax year). That means we're more likely to see another short-term fix than we are to see substantive reform.

Help is Available
Owing AMT can be an unpleasant surprise. It also turns a number of traditional tax planning strategies (e.g., accelerating deductions) on their heads , so it's a good idea to factor in the AMT before the end of the year, while there's still time to plan. If you think you might be subject to the AMT, it's worth sitting down to discuss your situation with a qualified tax professional. Until our federal government decides to substantially reform the current system, more American families will continue to carry this additional tax burden.

When you inherit a 401(k) plan account, the options available to you depend on a number of factors, including the terms of the 401(k) plan and your relationship to the deceased 401(k) plan participant. In general, you'll have four options: take an immediate distribution, disclaim all or part of the assets, leave the money in the 401(k) plan (if the plan permits), or roll the funds over to an IRA.

Should You Take the Cash?
Obviously, if you need the funds immediately, taking a lump-sum distribution from the 401(k) plan may be your only viable alternative. But you'll have to pay ordinary income tax on the distribution (certain exclusions apply; talk to your financial professional for details).

A lump sum might also be attractive if you're entitled to a distribution of employer stock. You may be able to pay ordinary income tax on just the participant's basis in the stock, and defer tax on the appreciation (also called "net unrealized appreciation") until you sell the stock in the future--at capital gain rates.

What's a Disclaimer?
When you disclaim (i.e., refuse to accept) 401(k) assets, they pass instead to the plan participant's contingent beneficiary, or estate if there is no contingent beneficiary. In general, you must give the plan written notice of your intent to disclaim the funds within nine months after the participant's death. But be careful not to exercise control over the funds in the meantime (for example, by choosing a distribution option or by exercising investment control), or you may lose your ability to disclaim the funds.

A disclaimer may be an attractive option if you're sure you won't need the funds, and the transfer to the contingent beneficiary makes good economic and estate planning sense.

The Problem With 401(k) Plans
If you're like most beneficiaries, your goal will be to stretch payments out as long as possible, taking full advantage of the tax deferral offered by retirement plans. This means either leaving the assets in the 401(k) plan, or rolling them over to an IRA.

For most, leaving the funds in the 401(k) plan isn't the best choice for two reasons. First, the investment alternatives available to you in a 401(k) plan are limited to the ones selected by the employer. Second, the distribution options offered by a 401(k) plan typically aren't as flexible as those available in an IRA. In fact, many 401(k) plans require beneficiaries to take distributions shortly after the participant's death.

Roll the Funds Over to an IRA
Unless the 401(k) plan offers a unique investment alternative, rolling the 401(k) assets over to an IRA will usually be your best choice. IRAs offer virtually limitless investment options. And when it comes time to take distributions from the plan, IRAs offer the most flexible payment provisions. But, before deciding on a rollover, make sure you understand any fees and expenses that may apply.

If you're a surviving spouse, you'll have to decide between rolling the funds over to your own IRA, or to an IRA that you establish in the participant's name, with you specified as the beneficiary (this is referred to as an "inherited IRA").

Which Should you Choose?
In most cases, spouses are better off rolling the funds over to their own IRA. A rollover is typically appropriate only if you're younger than 59½ and you think you'll need the funds before you reach that age. That's because distributions from an inherited IRA aren't subject to the 10% early distribution penalty tax. (In contrast, distributions from your own IRA before age 59½ are subject to the 10% penalty tax unless an exception applies.)

What About Non-Spouses?
If you're not the surviving spouse, you don't have the option of rolling the 401(k) assets over to your own IRA. But thanks to the Pension Protection Act of 2006, you may be able to make a direct rollover of the 401(k) funds to an inherited IRA. A 401(k) plan isn't required to offer this option, so check with your plan administrator. This new rule applies to distributions you receive after 2006.

The rules governing inherited 401(k) plan accounts are complex. A financial advisor can help you sort through the alternatives, and make the decision most appropriate for your individual circumstances.

So you've racked up thousands of dollars in student loans. Graduation is barely in your rear-view mirror, and the student loan companies are contacting you weekly about your soon-to-begin repayments. And if you didn't have enough on your mind already, we have to inform you that interest rates on variable student loan products just went up as well. Despite the increasing costs of higher education (and your burning desire to pursue graduate school) our federal government has a multi-trillion-dollar national deficit to repay...and apparently Uncle Sam's target is our nation's college students.

What's New
As of July 1, 2007, the interest rate on Stafford loans in repayment increased from 7.14% to 7.22%. The interest rate on in-school, grace, or deferment status Stafford loans went from 6.54% to 6.62%. And the rate for PLUS loans jumped from 7.94% to 8.02%. These rates will be in effect through June 30, 2008. The Department of Education sets the rates once each year based on the last three-month Treasury bill auction held in May.

These new rates apply only to loans issued on or after July 1, 1998 and before July 1, 2006. For all Stafford and PLUS loans issued on or after July 1, 2006, the loans will have a fixed interest rate--6.8% for Stafford loans and 8.5% for PLUS loans.

Keep Your Promise to Repay
Student loan repayment is a serious matter, especially since it directly affects your credit score. The main thing to remember is to communicate with your lender. If you are unable to make continuous monthly payments, just pick up the phone and let them know. They understand how most recent graduates are on the lower end of the economic scale and will usually work with you to arrange a favorable payback schedule.

With today's busy lifestyles, many people view a nice vacation every year as an entitlement, even if it means going into massive debt to pay for it. We understand the rationale...You work so hard all year and deserve a tropical break, especially after listening all winter about the fancy vacation plans of friends, co-workers, and neighbors. Of course everyone needs a break, and we all naturally want to have fond memories of endless summer days spent romping on the beach. But how can you keep those vacation costs from spiraling out of control?

Can You Really Afford It?
First, assess honestly whether you can afford the vacation you're thinking about. If you have to borrow most of the money to pay for it, then you probably can't afford it. If you do borrow to pay for your trip, you might find yourself financially strapped later on if the car dies or the roof starts leaking. At the very least, you'll inherit the stress that comes with trying to pay off that debt.

Think Outside the Vacation Box
Not being able to take a dream vacation doesn't mean you can't take a vacation at all. Everyone needs time away from their job and normal family responsibilities to recharge. If you just don't have the budget for the getaway of your dreams, then think of other creative ways to spend your time off. Here are some ideas:

• Try a few long weekends instead of one or two consecutive weeks. Perhaps you can afford a couple of nights at a hotel or bed and breakfast instead of all week. Or maybe you can camp for a few nights at a state or national park, where rates are very reasonable.
• Vacation from home. Take day trips into a nearby city and visit museums, restaurants, and other attractions. Or head out to the country for a hike, swim, and picnic. Doing things out of the ordinary, like eating breakfast three times a day or setting up a tent in the living room to play games and sleep in, can be a big hit if you have kids. (Most young kids usually just like being with their parents and are to tag along for whatever you have planned.)
• Let older kids pick an activity. It might not be Disney World, but what about a trip to an amusement or water park, a day or two at the beach, an afternoon canoeing or fishing, a movie and dinner outing, or a ballgame? Instead of lamenting the fact that you can't take an exotic vacation, focus on what you can do and enjoy the time with your family.
• Consider house swapping. If you're willing to trade houses with other like-minded families to save on room-and-board costs, there are several websites where you can find more information.

Plan Now for Next Year (or the Year After)
It's never too early to start thinking about next year, or the year after that. Start saving now for that future getaway by making a budget and seeing where you might be able to squeeze a few dollars. Consider opening a separate "Vacation Account" for those funds; otherwise, the money may get lost in your regular savings account and used for other purposes. Where you put your money will depend on your time horizon and other factors. A qualified financial professional can help you examine your options.

If you can contribute monthly to your vacation fund, great. If you can't, consider adding small windfalls like your tax refund, year-end bonus, or cash from birthdays and holidays. And when it comes time to actually plan your big vacation, keep cost-cutting travel tips in mind. For example, you might consider less convenient flights or a night or two at a less fancy hotel.

Forget About the Joneses
It's tempting to want to take grand vacations every year when everyone else seems to be doing so. But don't fall into the trap of thinking that you or your family will somehow be scarred if you can't. The important thing is to relax in a way that you can afford, and then enjoy that time with your family. You will have taught your children an important lesson--how to live a financially sound life, without worrying about what the Joneses are doing.