SAVING FOR A BRAINY DAY STATE PROGRAM HELPS FAMILIES PUT COLLEGE MONEY ASIDE.

Byline: Chris Sieroty Staff Writer

AGOURA HILLS - With college expenses continuing to outpace inflation and three children expecting to leave the nest for a university dorm room, Jim and Laura Lahana have been saving money on a monthly basis for their children's education.

With help from the state, the Agoura Hills residents have opened three savings accounts and are well on their way to being able to afford to send their sons to any university in California.

Launched almost eight months ago, the Golden State ScholarShare College Savings Trust now has more than 10,000 account owners and nearly $50 million invested for higher education.

The program enables families to save for education expenses with federal and state tax-deferred benefits.

``We like the program because the money is designated for college only,'' said Jim Lahana, father to 12-year-old Matthew, 10-year-old Daniel and 5-year-old Jacob. ``It can't be wasted on other things.''

According to estimates from the state treasurer's office, children born today will spend about $100,000 over four years to attend a public university and $200,000 for a private college. Those figures exclude books and other necessities.

To assist even more families in meeting the ever-increasing costs of higher education, lawmakers in Sacramento are considering a measure that would give parents a tax credit for investing today in their child's future education.

An Assembly bill in the Legislature would provide a tax credit to those investing in the ScholarShare college fund. If approved, California families could receive up to a $500 tax credit.

California State Treasurer Philip Angelides is expected to testify today in support of the measure currently before the Assembly's Revenue and Tax Committee.

The state treasurer said AB 2095, sponsored by Assemblyman Ted Lempert, D-Palo Alto, was expected to increase the number of families saving for post-secondary education.

``What it comes down to is that we are a huge state, and we have to do as much as we can to encourage parents to save for their children's education,'' said Angelides.

``By making it a part of the tax system, we can alert parents that the program is there,'' he said. ``This is a way to get the program in front of everybody when they are doing their tax returns.''

While most states offer a tax deduction for their college savings plans, AB 2095 uses a tax credit. The difference is that a tax credit goes against the actual tax a person pays, while a deduction goes against the income used to figure a person's tax.

Lempert says the $500 tax credit provides roughly the same level of benefit as a $5,000 deduction, but more fairly applies the benefit to all residents, especially those who do not itemize deductions.

Assemblyman George Runner, R-Lancaster, who co-sponsored the original legislation that created ScholarShare, called the idea of offering a tax credit as an incentive to invest ``a wonderful idea.''

``It's an additional incentive to invest in ScholarShare. On top of the tax-deferred basis, they would also receive a tax credit equal to 5 percent of what it contributed.''

Under the measure, joint and head-of-household filers with incomes below $150,000 - or single filers with incomes below $75,000 - would be able to obtain a maximum tax credit of $500 per year per child, depending on their contribution levels.

``It is a very modest investment in the education of our children,'' Angelides said. ``We are talking about a tax credit that in its third year would cost the state $37 million.''

When the savings are eventually used to pay college costs, the money is taxed at the child's income tax rate, which is usually lower than the account holder's rate. Proceeds can be used for tuition, certain room and board expenses, books and required fees and supplies at any accredited institution in the United States, so children aren't limited to schools in California.

In addition, ScholarShare can be used for graduate, medical, law and vocational schools.

``Having our sons use their accounts to attend a state school would be ideal,'' said Laura Lahana.

``A UC school like Berkeley or UCLA,'' chimed in her husband. ``If it happens to be Yale, Harvard or Stanford, so be it.''

The program is being offered and overseen by the state through the Scholarship Investment Board, which is chaired by Angelides.

``With minimum contributions as low as $25, no income limits and tax deferral, ScholarShare enables families to invest for their children's and grandchildren's education,'' he said.

The program encourages parents to set aside money while they earn it, said Jim Lahana.

``If they don't set it aside now it might not be there later; then the kid's education would get hurt,'' he said.

As a family using the trust as a savings vehicle for their children's education they also appreciate that money can be transferred between family members, Laura said.

Contributions to an account are invested in age-based, professionally managed stock, bond and money market mutual funds. Unlike many other college savings vehicles, there are no income limits, and contribution limits are not capped until well past the $100,000 mark, said Angelides.

Three additional investment options will be available starting July 1, said Susan Baltake, a spokeswoman for the state treasurer's office.

Those additional options include a diversified, 100 percent equity option comprised of domestic and international stock mutual funds; a 100 percent equity option which invests only in socially-responsible companies; and a guaranteed minimum interest rate option.

Baltake reminded parents and grandparents that the age-based allocation and the two new equity options are not guaranteed and that account values will fluctuate with the market.

THE FACTS

ScholarShare accounts are offered through a Participation Agreement and a Disclosure Booklet, which describes the program. Interested individuals can either receive an enrollment kit for the current age-based allocation option, or sign up now to receive information on the three new investment options when they become available in July. For more information, call 1-877-SAV-4-EDU (1-877-728-4338) or visit the Web site at www.scholarshare.com.

Source: Office of the State Treasurer.

CAPTION(S):

photo, box

Photo: (color) Laura Lahana is taking advantage of the state's ScholarShare program for her sons, from left, Daniel, Jacob and Matthew.

Evan Yee/Staff Photographer

Box: THE FACTS (See text)