Is the 529 college savings plan a good idea, or are there better ways to save for my child's college tuition? My children are 5 and 3.


4 Answers 4


Is your (and your spouse's, I assume) retirement fund in order? Make sure you're on track with that first.

Your children are slated to go to college starting around 2024. The value of a college education is already being called into question now. I expect this scrutiny to continue. A lot of schools offer a junker education at Ferrari prices.

College doesn't have to cost in the six-figure range. How about low five figures? Take CLEP exams to place out of as many classes as possible -- perhaps up to two full years. Then look for deals for the other two years. This can be paid for with a part-time job while living at home.

That, and if your kids get bitten by the entrepreneurial bug, they might see college as a waste of time.

Worry less about the tax savings that you'd get with a 529 plan and worry more about bringing down the cost of the education. That savings will dwarf what you'd save with the 529.


Do you and hubby have 401(k) accounts at work? If so, and if the $36K (as of 2015) retirement savings each year is enough, consider a Roth IRA earmarked for college. There are multiple benefits to this approach.

First, if the kids pull a Gates (drop out, start a company and get rich) you still have the money in your name and don't have to worry about tax/penalty on withdrawals.

Second, the investment choices are far more limited in the 529 accounts, and expenses, often higher.

Last, who knows what the rules for aid will be? I suspect a 529 will be considered in full as available to pay for college (right?) but your IRAs won't be.

2015 Update - in response to the comment below - Yes, I'd answer the same today. Of course, the key point is that your intended retirement savings is $36K or less. Obviously, if you need the Roth to help save for retirement, use it. No, it's not a special Roth, the tax status of the Roth makes it good for this purpose. The 529 account tends to have higher expenses than the funds you can get in your Roth. The S&P fund in my 529 charges a total .28% vs the .05% you can easily find in similar funds. An extra .23 over 20 years is nearly a 5% hit. (Note - I have a 529 funded 100% with a cash reward card. Otherwise I don't make deposits to that account)

  • Joe, when you say "a Roth IRA earmarked for college", is this a specific type of Roth IRA or simply a regular Roth IRA that I designate to be used for my kids' college. And lastly...does your advice still stand 4 years after you answered the question?
    – NeedAdvice
    Commented May 6, 2015 at 6:14
  • I updated my answer. Commented May 6, 2015 at 11:27

Your state and tax situation factors into this too. If you live in a high-tax state like New York, the tax benefits may be worthwhile to you.

I asked a similar question a few months ago and got some great answers.

Personally, I chose to do a 60/40 split between a custodial brokerage account and my state's 529 plan. I live in NY, whose plan offers Vanguard funds at pretty low expense ratios.


One way to save for your children's college education is through funding a ROTH IRA if you are eligible. You and your wife can contribute up to $10k a year and the contributions are tax free when withdrawn in the future. As long as your total retirement is on track when it's time to pay for college then you can execute this feature. This is how I am saving for my children's education.

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