Comparing College Savings Options: 529 Plans, Roth IRAs, and Real Estate Investments

Comparing College Savings Options: 529 Plans, Roth IRAs, and Real Estate Investments

As a parent and financial planner, ensuring that we make the smartest financial decisions for our families is crucial. In this article, we will explore three popular savings and investment options: 529 Plans, Roth IRAs, and Real Estate. Each has unique benefits and drawbacks, and understanding these can help you decide which fits best with your financial situation, risk tolerance, and goals.

529 Plans

529 Plans are specialized savings accounts designed to help families save for future education costs. Here are the key benefits and drawbacks:


  1. Tax-deferred growth: Earnings grow tax-deferred, meaning you won’t pay taxes on the account’s earnings until the money is withdrawn.
  2. Tax-free withdrawals for qualified expenses: Withdrawals used for qualified education expenses are tax-free, which can lead to significant savings.
  3. State tax benefits: Many states offer tax deductions or credits for contributions to a 529 Plan.
  4. High contribution limits: These plans allow for substantial contributions, which can grow significantly over time.


  1. Impacts financial aid: Assets in a 529 Plan can affect eligibility for financial aid.
  2. Must be used for qualified expenses: Withdrawals not used for qualified education expenses may incur taxes and penalties.
  3. Potential penalties: If funds are not used for education, they may be subject to penalties and additional taxes.

Roth IRAs

Roth IRAs are individual retirement accounts that offer unique advantages for both retirement and education savings.


  1. Tax-free growth: Contributions grow tax-free, and qualified withdrawals in retirement are also tax-free.
  2. No FAFSA impact: Roth IRA assets are not considered on the Free Application for Federal Student Aid (FAFSA), which can be beneficial for financial aid purposes.
  3. Dual-purpose: Roth IRAs can be used for both education expenses and retirement savings, providing flexibility.


  1. Contribution limits: Annual contribution limits are relatively low compared to other savings vehicles.
  2. Can impact retirement savings: Using Roth IRA funds for education expenses can reduce the amount available for retirement.

Websites Where You Can Open Roth IRA Accounts: VanguardFidelity, Charles Schwab.

Real Estate

Investing in real estate can provide substantial returns, but it also comes with its own set of challenges.


  1. Continuous rental income: Real estate can generate steady rental income.
  2. Property appreciation: Properties often increase in value over time, contributing to overall wealth.
  3. Higher income potential with Airbnb rentals: Renting properties on platforms like Airbnb can yield higher income than traditional rental agreements.


  1. Requires property management: Owning rental property requires ongoing maintenance and management.
  2. Market risks: Real estate markets can be volatile, with property values subject to fluctuations.
  3. Compliance with local regulations:Property owners must adhere to local laws and regulations, which can be complex and vary by location.

Anna’s Takeaways

When choosing the best savings or investment option, consider your financial situation, risk tolerance, and long-term goals. Here’s a quick summary:

529 Plans: Ideal for those seeking a simple, tax-advantaged way to save for education.

Roth IRAs: Great for individuals who want flexibility and a dual-purpose account for education and retirement.

Real Estate: Offers consistent income potential but requires active management and carries market and liquidity risks.

Regardless of the option you choose, it’s essential to consult a financial advisor to tailor your savings strategy to your unique circumstances. Diversifying your savings strategies can also help mitigate risks and maximize returns. With careful planning and informed decisions, you can secure a financially stable future for you and your family.

Website & Links mentioned:


Anna Sergunina
Anna Sergunina

I'm Anna Sergunina, CFP®, President & CEO at MainStreet Financial Planning, Inc. My passion lies in serving others through financial planning, helping clients achieve their dreams like buying a home, saving for education, or retiring early. With over two decades in the industry and a CFP designation since 2009, I'm dedicated to excellence and continuous growth. Beyond work, I cherish moments with my son Liam, prioritize self-care, and engage in content creation for my Money Boss Parent Podcast and Money Library blog.

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