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Our firm hears this statement A LOT: We want to start saving for our children’s college education. But there are so many options. Where do we start? What a great question. There are many things to consider when saving for college.

Investment Strategy

Our firm considers the use of three primary vehicles when designing a family college savings plan. They are listed in order of priority.

1. Roth Individual Retirement Account (Roth IRA)

When saving for college, Roth IRAs are often the best option.

How can a retirement account be used as a college savings plan? Here’s how:

You may use Roth funds for your dependent child’s education without penalty. For lucky parents whose kids receive full scholarships and other support – you simply continue using it as your tax-free retirement savings! Making Roth IRA a win, win strategy.

Principal balances may be withdrawn anytime for any reason. Earnings may be withdrawn for dependent child’s education (no tax penalty) or at retirement (tax free).

2016 Contribution Limit: $5,500 annually for each person who has a job or is married to a worker; $6,500 annually if 50 or older (some income limitations may apply)

Under the current rules, a married couple may save up to $11,000 per year… more than enough to pitch in for future college expenses.

2. Uniform Transfers to Minors Act (UTMA)

Once you have reached the contribution limit for Roth IRA, the next option is a UTMA. Income from this account is attached to the child’s social security number for tax purposes, but control of the account remains with the parents. Currently, a child is allowed $1,050 of annual investment income tax-free.

When it is time for college, you can use it for kid’s education. If they receive scholarships and don’t need the money, you may withdraw it from their account for any reason and keep what you’ve saved or leave it with the child to take ownership when they reach the age of majority in your state.

2016 Contribution Limit: $14k annually each parent to each child

Under the current rules, a married couple may save up to $28,000 into each child’s UTMA per year.

3. 529 College Savings Plan

Use this after the Roth IRAs and UTMAs have been filled each year. Or use it as a short-term state income tax savings vehicle.

The investment options for these accounts can be limited.

The major downfall of 529’s – they are a “use it or lose it” plan. You pay tax on any amounts not used for dependent child’s education (pay tax on the gains).

2016 Contribution Limit: Unlimited and several states allow up to a $10,000 state income tax deduction annually



  • Tax free growth
  • Wide array of investment options
  • Use for dependent child’s higher education
  • Use for retirement


  • Currently – $1,050 annual tax free growth
  • Wide array of investment options
  • Use for education
  • Use for anything

529 Plan

  • Tax free growth if 100% of funds used for higher education
  • State income tax savings on contributions (up to $10,000 deduction annually)
  • Limited investment options
  • Must use for education

If your two goals are saving for kid’s college AND your own retirement, the Roth IRA should be your first option since it tackles both of those objectives at the same time!

For detailed discussion on your best option for saving, please contact one of our financial professionals.