What's the Best Plan for Your Child's College Savings?

By NerdWallet  JUN 28, 2013 1:20 PM

One of these two options will likely work for every family.


While it is commonly said that for most people, a home purchase is the largest investment they will ever make, a parent’s investment in their child and the child’s future – including college tuition – oftentimes far exceeds the costs and financial complexity of a simple real estate purchase. Of all of the expenses parents face during a child’s upbringing, very few are more dreaded than the eventual price tag associated with attending college.

By taking a look at different investment options and financial planning strategies, parents can compare the different options at their disposal,which can make saving for a child’s education feasible. In this situation, most parents consider either a 529 Plan or a Roth IRA as the ideal way to save. This article will focus on a few of the advantages of each so that you can make an informed decision about the correct savings strategy for your family.

How Can a 529 Plan Help You?

A 529 plan is an investment option sponsored by either a state-level government or an educational institution. There are two types of 529 plans: prepaid tuition plans and college savings plans. Each has varying specifications to further help you create the ideal savings plan for your child. Overall, 529 plans have a number of benefits which separate them from Roth IRAs:
When a Roth IRA Becomes Useful

Despite the numerous advantages of investing in a 529 plan, there are still situations where a Roth IRA may be a better choice for your child’s educational planning. Here's a list of the advantages:
When it comes to saving for your child’s college education, thorough planning can mean the difference between financial freedom to attend the school of their choice, and struggling to cover rising tuition costs. For parents, both 529 plans and Roth IRAs present a number of benefits and disadvantages which need to be thoroughly examined in order to choose the right investment strategy for your financial situation and child’s educational goals. Every family and student’s financial needs will be different, so it is important to carefully identify your individual savings goals before choosing any investment plans.

Editor's note: This story by Susan Lyon originally appeared on NerdWallet

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