Raising a mini-mogul

If you're the parent of a 10-year-old, you probably have more questions than answers when it comes to paying for college.

You still have time, but obviously not as much as when your child was younger. If you've been saving, will it be enough? For that matter, what does "enough" even mean? And if you've dropped the savings ball, is there still time to catch up?

No matter your situation, there's no cause for panic. A successful college savings plan doesn't always need an 18-year head start. What you do need, if you have kids who are eight or so years away from starting college, is a moment to pause and evaluate where you are. You may be doing fine, or you may need a midcourse correction. Or, if you've been less than proactive, it may be time to kick your college savings program into gear.

Angela Heath virtually defines proactive. A 49-year-old self-employed gerontologist from Kensington, Md., Heath has been saving for her 10-year-old son Tarik since he was 3. To date, she's accumulated about $20,000 in a mutual fund in her name and roughly $60,000 in equity in rental property in nearby Washington, D.C. She makes monthly $150 contributions to the fund -- and gets Tarik to help out with the rental property. Video: Kids should participate

"I tell him, 'This property is part of your college fund; you have to help take care of it,' " says Heath.

But challenges persist. As a single parent, Heath is the sole funding source for her son's college education; she says she doesn't even take her ex-husband into consideration. Plus, she is already paying bills for Tarik's schooling. Angela sends Tarik to a private parochial institution rather than public school. Video: If you're single, get creative

Moreover, Tarik will start college at roughly the same time that Heath hopes to retire. Add it all up, and Heath has to be realistic.

"My goal is to help him pay a good portion of the bill," she says. "He's probably going to work while he's in school and take out some small loans." Video: An ATM for a 10-year-old

For the most part, financial planner Rita Cheng agrees with Heath's overall strategy. Not only has Heath continued to contribute to the mutual fund (she paces her contributions evenly to reduce risk), but she has also kept up with her retirement plans.

"She's always maxed out her contributions to her Roth IRA and Simplified Employee Pension plan," says Cheng, who has an office in Bethesda, Md.

Cheng is optimistic, and a quick look at the numbers tells us why. Assuming that Heath continues to feed her mutual fund at the current $150-a-month rate -- and assuming a reasonable 7% average return over the next eight years -- the family will have some $54,000 in the fund.

Tack on the equity in the rental property (available through a line of credit), and the Heaths should easily have more than $100,000 for Tarik's schooling. That's more than enough to get Heath to her goal of funding a portion of the bill (but not all of it). Video: Who should pay for college?

But even for families who have the goal in sight, it's never a bad idea to consider other funding options and strategies to augment what they already have in place.

Cheng urges Heath to consider a Coverdell Education Savings Account. Formerly known as an "education IRA," a Coverdell would allow Heath to deposit as much as $2,000 a year toward Tarik's college education and have the money grow tax-free. The Coverdell also works well with financial aid formulas. And it will likely offer tax-free withdrawals as well.

Here's another plus: You get to choose how Coverdell funds are invested -- mutual funds, stocks, whatever -- unlike 529 college savings plans, which limit you to the

choices offered within a particular plan. (Those limitations cooled Heath's interest in 529s.) Cheng had one final thought for families with kids in this age bracket: Look at the time frame of college in a different light. At age 10, Tarik will likely start college in eight years. But that doesn't necessarily mean Heath should limit her planning and preparation to the same eight-year window.

"You can still be saving for college when your child has already begun attending college," says Cheng. "Your planning and saving should not stop when your child starts school -- that's why it's important to continue to save for, say, your child's junior year while he or she is a freshman. You can only cause problems if you cut yourself off."

There are other strategies to consider, depending on how well you're doing so far.

If you're basically on track with college savings:

Review your plan every year. Double-check to see how you're tracking toward your ultimate financial goal. Adjust your savings and investments, if necessary.

Keep financial aid on the front burner. As assets accumulate, make sure to position them in ways that do minimum harm to your prospects for financial aid.

Assets will reduce aid much more when they are owned by a child than when they are owned by a parent. And while it pays to save, be sure you're spending intelligently: Heath's investment in a good school, for instance, will likely pay off by helping Tarik earn academic scholarship aid.

Start shopping early. Families with pre-teen kids would do well to at least start acquainting themselves with the sorts of colleges their children might be interested in. Not only can you learn specific education costs -- which will help you gauge how much you need to save -- but you can also get acquainted with the various financing programs your target colleges offer, and the sort of students most likely to get aid.

Even if you haven't gotten started, however, don't lose heart. It's never too late to begin a college savings plan.

Here are five tips to get you started:

1. Evaluate your assets. Do you have any assets already in place -- such as mutual funds, savings accounts or other vehicles -- that could be used for college?

2. Run the numbers. It's essential to know what sort of costs you're looking at. Use the college-cost

calculator below to see what sort of expenses you might expect. From there, set up some manageable savings benchmarks. Determine just how much of the overall cost you can reasonably handle and tackle that.

3. Watch your spending. Thoroughly evaluate your spending and savings habits to see if you can trim something to free up funds. Wherever your spending patterns don't square with your long-term priorities -- and college should be one of them -- change the pattern.

4. Be aggressive. If you're making up for lost time, you might want to consider investment options, such as 529s, that offer aggressive, growth-oriented mutual fund choices and better potential for high returns. Just bear in mind that high performance can also carry greater risk. And don't lose sight of quality-of-life issues: You don't want to be losing sleep over an investment choice that's simply too volatile for you.

5. Be particularly aware of the impact on financial aid. It's possible that you'll have to rely on financial aid more than other families who have been saving longer. When deciding where to put funds, know how they'll effect financial aid calculations. (In a nutshell: Assets in your kids' names reduce potential financial aid more than assets you own.)

Produced by Elizabeth Daza/Graphics by Hakan Isik and Joe Farro