What is the best type of account to set up to save money for my child's college expenses?

January 19, 2017
I'm 30 years old and make $65,000 a year. I have a 10 year old son.

Advisor answers

A 529 college savings plan is a good option. For more information, visit www.nerdwallet.com/investing/saving-for-college-529-plans

I would suggest two methods:

1) You can immediately start contributing to a 529 plan. It often makes sense to open the plan that your state has established, as the contributions have the potential to be deductible for state income tax purposes. This account can grow tax free as long as eventual withdrawals are used for qualified education expenses.

2) As soon as your son has earned income (from a summer or part time job), it can make some sense to have him contribute to a Roth IRA. Similarly, Roth IRA contributions can be withdraw...

Mark Struthers

Mark Struthers

CFP®, CFA

I have written on this topic in some detail, here is recent article that I think would help:

www.nasdaq.com/article/roth-iras-knock-out-529-plans-in-the-battle-for-education-funding-cm639571

The 529 Plan is a great tool but a little overused. As my article mentions, maxing out your Roth IRA, if possible, is usually the best holistic strategy. For most people, retirement should come first. It is still early but one advantage of using retirement accounts first is they are not used for most financial-aid calculations (FASFA – The F...

You can also just open a taxable brokerage account. Buy 10 to 20 individual stocks and let them ride. I'd only invest in stocks that are part of the S&P 100 or Nasdaq 100.

In 8 years when your son is ready for college, see where your stocks stand. If you have all gains, your taxes will be long term. And of course you wouldn't have to sell them all. I'd also bet your performance will be better that funds in a 529 plan.

If you have some gains and losses, you can offset some of the taxes.

If you only have losses, well, that would suck...