Rethinking College Savings Strategies

With rapidly increasing college costs, the need for a carefully developed college savings strategy has never been greater. In many cases, advance planning and the use of tax- favored savings vehicles can minimize the need for borrowing in order to fund college costs. IRC section 529 savings plans and Coverdell Education Savings Accounts (ESA) are popular but are often viewed in isolation from an individual's retirement savings strategy. In the authors' view, a more effective approach for many individuals is to view college and retirement as two complementary objectives of an integrated savings program. Where individuals are not already maximizing contributions to a Roth IRA, doing so may have significant advantages over 529 plans and Coverdell ESAs. The Roth 401(k) plan was made permanent by the Pension Protection Act of 2006. If the final regulations were to be revised to be consistent with those for Roth IRAs, long-serving employees would also enjoy these benefits, dramatically enhancing the value of the Roth 401(k).