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College is costly, but
the pain can be spread
over time

IF you have a college-bound senior in your house, you know that the end of this school year means the beginning of a new adventure. However, while college can be exciting, it's also expensive. If you haven't saved as much as you would have liked, don't despair -- even at this late date, you can take some steps to help pay those college bills.

Here are a few ideas to consider:

» Don't panic: You don't have to pay the full year's tuition, room and board up front. You will likely be billed in installments that may correspond to the school's quarter or semester system. This payment system doesn't lessen your overall costs, of course, but it does give you a bit of time to come up with additional funding sources. For example, if you have a bond coming due in the middle of the college calendar, you can use the proceeds to help pay for school.

» Liquidate assets in timely manner: If you've earmarked certain investments for college, try not to liquidate them until it's absolutely time to write out a check. The longer you can keep your investments growing, the better off you'll be.

» Look at a Roth IRA: If you have a Roth IRA, you can withdraw contributions, tax- and penalty-free, to help pay for your child's education. Certain conditions apply to penalty-free withdrawals, so you should talk to your tax adviser for more information. And keep in mind, if you start withdrawing earnings, you'll have to pay taxes on them unless you meet certain conditions.

If you still have a few years before your children head off to school, you may want to take advantage of some of the more popular college-savings plans. Here are two to consider:

» Section 529 plans: When you set up a Section 529 savings plan, you put money in specific investments, which are managed by the plan administrator. If you participate in your own state's Section 529 plan, you may be able to deduct your contributions from your state income taxes. Your plan contribution limits are high, and your withdrawals are free from federal income taxes, as long as the money is used for qualified college or graduate school expenses. Withdrawals for expenses other than qualified education expenditures may be subject to federal, state and penalty taxes.

Section 529 tax benefits are only effective through 2010, unless extended by Congress. Also, a Section 529 plan could reduce your child's or grandchild's ability to qualify for financial aid. Because tax issues for 529 plans can be complicated, consult your tax adviser.

» Coverdell Education Savings Account: Depending on your income level, you can contribute up to $2,000 annually to a Coverdell Education Savings Account. Your Coverdell earnings and withdrawals will be tax-free, provided you use the money for qualified education expenses. (Any non-education withdrawals from a Coverdell Account may be subject to a 10 percent penalty.) You can fund your Coverdell Education Savings Account with virtually any investment you choose -- stocks, bonds, certificates of deposit, etc. And you can contribute to a Coverdell Account in the same year that you put money into a Section 529 plan.

Putting together a good college-funding plan, either at the last minute or years in advance, can test your resources and ingenuity. But by diligently exploring all your options, it's a test you should be able to pass.