HOW ABOUT JUST ONE LIFETIME SAVINGS ACCOUNT?:

Saving for college? Try a Roth. (Annette Varnier, 2/28/05, The Christian Science Monitor)

When it comes to saving money for college, many parents find themselves in a conundrum: They want to save for their children's education, yet they need to save for retirement at the same time.

While many financial experts advise making retirement saving the first priority, most parents still want to be able to pay at least part of their children's college costs. Thus, they often establish separate accounts: 401(k) plans to fund their own retirement and state-sponsored 529 plans to save for college.

But there's a third option families should consider adding to the savings mix, experts say: a Roth Individual Retirement Account.

"The Roth IRA has a lot of appeal for retirement and can be used for college, too," says Joseph Hurley, founder and chief executive of savingforcollege.com. The website specializes in providing information about 529 plans and other methods of saving for higher education.

"People should generally save for retirement first, because you can't get loans for retirement, and there are a lot of other sources of help available for college, including loans," Mr. Hurley says. In particular, 401(k) plans often come with matching contributions from employers.

But after retirement is covered, it's time to take a closer look at 529 college savings plans and Roth IRAs. Both plans use after-tax dollars for contributions, so you don't get a tax break up front but your earnings grow tax-free. Withdrawals from a 529 plan for education costs are tax-free, but so are withdrawals from a Roth IRA if the owner is over 59-1/2 and has had the account for over five years.

Isn't it long past time to combine all these accounts into one?

Posted by Orrin Judd at February 28, 2005 7:03 AM