California College Guide : Saving for College

Here are four methods financial planners often recommend to parents who are trying to save for their children’s college expenses.

EE U.S. Savings Bonds. Sold at a discount of their face value, EE savings bonds, issued by the federal government, pay a minimum of 6% interest if held for five years. The interest is tax-free if used to pay for college, depending on household income.

No-Load Mutual Funds. In contrast to load funds, no-load mutual funds do not charge a sales fee, or “load.” Investors usually buy shares in such funds directly from the investment company, which pools the money from many individual shareholders to buy stocks, bonds or other investments.

Individual Retirement Accounts. IRAs are personal retirement accounts that allow employed individuals to save up to $2,000 a year tax-deferred, depending on income and whether their employers offer pension plans. Withdrawals made before age 59 1/2 are usually subject to a 10% penalty.

Real Estate Investment Trusts. REIT companies invest in shopping centers, office buildings and other real estate and sell shares to individual investors.