A good rule of thumb when investing for college is to give greater priority to your retirement savings than to college savings. There are two reasons for this:

  1. First, the student has resources to draw on besides you to help pay for college, but your client can’t get a scholarship to retire, and
  2. Second, many parents have only a few years to save for retirement, once the last child graduates. Considering the number of children they may have to educate and the high price of college, they may be better off to borrow for college than neglect their retirement goals.

Everybody assumes that QTPs are the best way to save for college. In reality, this may not be the case. It just depends on the family’s financial goals and objectives. Every family has different circumstances from which they must make the final determination on which investment account is best.

Financial advisors need to understand the various choices when it comes to investing for college, including QTPs (529 Plans), Coverdell Education Savings Accounts (formerly Education IRAs), custodial accounts (UGMAs/UTMAs), and tax-efficient mutual funds. Each has different rules and tax implications, and each is counted differently when it comes to financial aid eligibility.