Many city employee are parents working hard to save for their retirement needs. For them, the additional high cost of college education for their children is a double whammy. Over the past 20 years, the average price of a four-year education has quadrupled according to the Education Resource Institute.  At this rate, higher education expenses for a child who's now 10 years old will hit almost incredible proportions in the future.  College Money, an educational consulting firm, estimates that a four-year Ivy League education will cost upwards of $233,000.

What are public employees with children to do?  Here's what many financial advisors suggest:

Take care of yourself first

Yes, that sounds selfish. But, if city employees sacrifice their retirement investments to pay for their child's college education, they probably won't be able to save enough afterward to replace the money.  What's more, you'll have too little time left for the compounding of your investments.  This could mean that the children will end up having to provide parental support when they're older -- a burden we'd like to spare them if we can.

Thus, it's best to start saving for college only after your retirement savings program is already on track.

Estimate how much your kids will need for college

To approximate what the cost will be when your kids are ready to enroll, increase today's college tab by an inflation factor of 8% a year. (This is an average inflation rate based on past increases; the actual rate may be higher or lower.) A personal-finance program like Quicken can perform this compounding calculation for you.

After determining this target amount, decide how much of it you can realistically expect to save.  The more you can put aside, the less you or your kids may have to borrow later.

Set up an automatic investment program

With the Nationwide investment options, for example, you can make automatic monthly contributions of as little as $25.

Structure college investments to suit your time frame

If your child is five or more years away from college, your education portfolio should be primarily or totally invested for growth.  As he or she approaches college age, you'll want to shift some of the portfolio into more stable growth & income, income and/or money market funds.

IRA's for educational expenses

An Education IRA may be a good starting point for a college investment program.  Up to $500 per year can be contributed to an Education IRA (provided the contribution is made before the child turns age 18).  Distributions from an Education IRA to pay qualified higher education expenses* are tax and penalty free.

Some financial publications have promoted a concept using a Roth IRA to save for higher education expenses.  A Roth IRA should be viewed primarily for meeting retirement objectives. However, you might choose to view a Roth as another possible source for paying higher education expenses.  Unlike distributions from an Education IRA, distributions from a Roth IRA for qualified higher education expenses are not tax-free. In other words, distributions from a Roth IRA do not qualify for tax-free treatment solely because the distribution was used to pay qualified higher education expenses.  However, distributions from a Roth IRA for qualified higher education expenses are generally exempt from the 10% early withdrawal penalty.  While the distribution will generally be taxable, the 10% penalty may not apply.  As always, it is best to consult with your own legal or tax advisor for details that may affect your particular situation.

Children with earned income also qualify to open a Roth IRA.  Thus, the city employee, their spouse, and their child could potentially put away a total of $6000 a year, plus $500 more in an Education IRA (any of which can be withdrawn tax-free for college expenses).

 In partnership with the United States Conference of Mayors, Nationwide¨ Retirement Solutions can help

For further details on how you can ensure your city's employees can best provide for you and your child's future, contact Roger Dahl or Kathryn Kretschmer-Weyland at 202-293-7330.

 *Qualified higher education expenses generally mean expenses for tuition, fees, books, supplies and equipment at an eligible educational institution.