Articles of Interest

Articles of Interest


There are three basic types of accounts/forms of ownership that may be used to for college savings/investments:

  • Parent(s) name(s)
  • Child’s name (UGMA/UTMA)
  • Section 529 Account

Keeping investments in the parent(s) name(s) has one primary advantage: the parent(s) retain full control over the assets at all times. They control the investment decisions and, importantly, the disbursements from the account. Funds can be used at any time for any purpose, without penalty. The disadvantages of investing in this manner are: 1) taxes on investment income; and 2) the assets are considered “available” in calculation of potential financial aid for college.

Investing in the child’s name provides some (potentially significant) tax advantages. For children under age 14 (in 2009), the first $950 of interest/dividend income in their names is free of Federal income taxes and the next $950 will be taxed at the child’s rate (typically 10-15%). Thus, the tax savings on the first $1,900 of income might be as much as $500 or more (depending on your tax bracket and the nature of the income). The major disadvantage of this form of ownership is that the assets belong to the child when he/she reaches the age of majority (18 in most states). At that time, the child can (theoretically) use the assets for any purpose, with the parents having no legal rights as to its use. The parent also has the opportunity to use the funds for the child’s benefit prior to their reaching the age of majority. Finally, all other things being equal, having funds in the child’s name will hurt the child’s chances of qualifying for Federal financial aid for college.

The Section 529 Plan provides, in many ways, the best of all worlds. In these accounts, the “Participant” (i.e., parent, grandparent, etc) opens the account and names a “beneficiary” (child). The funds are managed by an investment company with whom the account is opened (Fidelity, Charles Schwab, Franklin Templeton), with some direction from the Participant. The Participant has full control of the timing and amounts of all withdrawals. As long as withdrawn funds are used for post-secondary education for the Beneficiary, all withdrawals will be federal income tax-free (also free of State taxes in many instances). The Participant can change the Beneficiary at any time, so funds can be allocated to different children, nieces, nephews, or even the Participant herself. Non-qualified withdrawals are subject to full taxation plus a 10% penalty. Thus, the only “negative” to these accounts is that you are subject to a penalty if you use the money other than for the purpose of higher education. For high-net-worth individuals, there is an additional benefit — monies put into a 529 Plan are deemed to be outside of the Participant’s estate for estate-tax purposes.

For most clients, I find that the 529 Plan is the best vehicle for college savings, and I use 529 Plans for the investment of funds for college for my own children. However, there are numerous 529 Plans from which to choose, and they vary widely in terms of State tax benefits, administrative costs, and investment-related expenses (including many “advisor-sold” funds which may contain significant upfront commissions and ongoing expenses).

As a fee-only investment advisor, I do not sell any 529 Plans (or other investments); instead, my fixed fee includes assistance with an analysis of the optimal ownership structure and the selection of appropriate investments.

back to top


You may, at one time or another, use many different financial professionals... accountants, stock brokers, insurance salespeople, estate planning attorneys.  In many cases, these professionals may provide valuable expertise in a specific area. In contrast, a planner is someone who is looking at your entire financial picture and making sure all elements in your financial life are working, in concert (and not in conflict) to your goals (whatever they may be).

For example, a broker may (or may not) provide excellent investment advice. However, they are not likely to be expert in answering questions such as: 

  • How much do I need to save for college? for retirement?
  • How should I allocate my available money between college and retirement savings?
  • How should I save for college? in my name? my child’s name? a 529?
  • Should I invest or pay down my mortgage?  Should I refinance my mortgage?
  • Should I buy or lease my new car? Should I finance it?
  • I have a Will... do I need to do any other estate planning?
  • Can I afford a vacation home?

Even if an investment broker has some knowledge in these areas, it is not their job. They are paid (whether through fees or commissions) only to the extent that you invest with them. Therefore, they cannot be expected to give you the time and objective advice needed to answer these (and many other) questions. 

Similarly, an insurance salesperson may be able to help you determine how much life insurance you “need”, but he/she is unlikely to have the insight into your entire situation to know what you can afford and how those insurance policies tie into other aspects of your financial life. 

In short, you should think of your financial planner as the “quarterback” of your “financial team”, coordinating the efforts of multiple individuals toward your goals.  The planner will be the professional that can see the “entire picture” and bring in outside expertise where needed.

back to top