THE BARATELLI INSTITUTE · Mentoring at Scale
FOR PARENTS & GRANDPARENTS · VEHICLE SELECTION

Three places to save for college. They have very different rules — and very different outcomes if the kid doesn't go.

A 529 is tax-free for education but penalized for everything else. A Roth IRA is tax-free for retirement but contribution-capped and earned-income-required. A UTMA is fully flexible but taxable, FAFSA-toxic, and legally transfers to the child at 18 or 21. The right answer depends on four things: your tax bracket, your kid's age, your confidence the money will be used for school, and your FAFSA exposure.

After-Tax
Value at age 18
FAFSA
Asset weighting
Flexibility
If no college
Verdict
Best vehicle
YOUR DECISION
1
Family situation
2
Contribution plan
3
Vehicle deep-dive
4
FAFSA reality
5
Results & verdict
STAGE 1 OF 5

Family situation

Your tax bracket and your kid's age determine which vehicle wins on raw after-tax math. We'll layer FAFSA, flexibility, and "what if they don't go" in later stages.

Adjusted gross income (1040 line 11). Drives federal/state marginal rate and Roth eligibility (single phase-out ~$146-161K; MFJ phase-out ~$230-240K for 2024).
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Top federal bracket. 2024 MFJ: 22% to $201K, 24% to $384K, 32% to $487K, 35% to $731K. Use whatever the next dollar would be taxed at.
%
State top bracket. CA: 9.3-12.3%. NY: 6.85-10.9%. IL flat: 4.95%. FL/TX/WA/NV/NH/TN/SD/AK/WY: 0%.
%
Years until age 18 = years of compounding. A 2-year-old has 16 years; a 12-year-old has 6.
Typically 18. Use 19 if planning a gap year.
Required to fund a Roth IRA in the kid's name. Common at age 14+ — babysitting, lifeguarding, summer jobs, family business W-2.
Your AGI vs the EFC threshold. Roughly: AGI under $75K = high need-aid eligibility; AGI $75-200K = some; AGI $200K+ = minimal. Drives how much FAFSA exposure matters.
STAGE 2 OF 5

Contribution plan

How much you're saving and how confident you are the money will actually go to college. Confidence drives the "what if they don't go" math.

Total dollars you're prepared to put into education savings each year. Defaults to $10K — covers a moderate four-year public university in current dollars over 18 years.
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For projection purposes. 5-6% is reasonable long-term real return for a balanced age-based portfolio. We use this for all three vehicles equally.
%
90%+ = strong college path expectation. 60-80% = open but probable. Under 50% = real possibility of trade school, business, military, gap path, or no college.
%
From the 529 State Tax Deduction calculator. Default $495 = $10K contribution × 4.95% IL flat rate. Set to $0 if your state has no deduction.
$
If yes, the marginal Roth contribution displaces 0% of current retirement saving. If no, putting money in a Roth instead of education means you're partly subsidizing retirement.
Roth IRA contribution is $7K/person 2024 (under 50). If you're already maxing, using a Roth for college means displacing retirement saving.
STAGE 3 OF 5

Vehicle deep-dive — the four real options

Four vehicles, four rule sets. We'll model all four with your inputs and tell you which one wins for your specific situation.

The four vehicles in plain English.
  • 529 plan — tax-free growth for qualified education. State deduction often. 10% federal penalty + ordinary income tax on earnings for non-qualified withdrawals. Recent flexibility: $35K lifetime can roll to Roth IRA (Secure Act 2.0, account must be 15+ years old, beneficiary owns the Roth, subject to annual Roth contribution limits).
  • Roth IRA (parent's name) — tax-free growth. Contributions can be withdrawn anytime tax/penalty free. Earnings tax/penalty free if over 59½ AND account 5+ years old. Education is a qualified exception to the 10% penalty but earnings withdrawn pre-59½ for education are still taxable. AGI phase-out: MFJ $230-240K (2024). Cap: $7K/person.
  • Roth IRA (kid's name) — same rules, but kid needs earned income. Contribution capped at the lesser of $7K or earned income. Parents can fund "matching" up to that limit. Cleanest education vehicle if kid is 14+ with summer jobs. Not reported on FAFSA at all (retirement accounts are excluded).
  • UTMA/UGMA — taxable brokerage account in custodian-managed trust for the kid. Earnings taxed at kiddie-tax rates (first $1,300 at kid's rate, next $1,300 at kid's rate, above that at parents' rate through age 18, but kids under 24 if full-time student). FAFSA: counted as KID asset (weighted 20%, vs parent assets weighted 5.64%). Irrevocably belongs to the kid at age 18 or 21 (state-dependent).
529-specific overrides
10% federal penalty on earnings portion. Default — change only if you have a specific exemption case.
%
Secure Act 2.0 allows up to $35K lifetime rollover from a 529 to a Roth IRA in the beneficiary's name (account 15+ years old, subject to annual Roth limits).
UTMA-specific overrides
Kiddie-tax-blended rate. First $1,300 untaxed, next $1,300 at kid's rate (~10%), above at parents' rate. We use a blended estimate. Default 22%.
%
Age the kid takes legal control. CA: 18. NY: 21. Most states: 21. Some give parents an extension to 25 if elected at opening.
STAGE 4 OF 5

FAFSA reality

The Free Application for Federal Student Aid weights different account types very differently. If you expect ANY need-based aid (Pell grant, subsidized loans, institutional aid at private schools), this stage matters.

FAFSA asset weighting cheat sheet:
  • Parent-owned 529: Counted as parent asset → weighted up to 5.64% of value in EFC/SAI calculation. Good treatment.
  • Grandparent-owned 529: Post-2024 (FAFSA Simplification Act): NOT reported. Pre-2024: distributions counted as untaxed student income, 50% hit. Currently best treatment — but verify rules are still in effect.
  • Parent-owned Roth IRA: NOT reported (retirement accounts excluded from FAFSA). Excellent treatment on the asset side. BUT: withdrawals count as income on the FAFSA two years later.
  • Kid-owned Roth IRA: NOT reported (retirement accounts excluded). Withdrawals count as kid income two years later (worse than parent income).
  • UTMA / UGMA: Counted as student asset → weighted 20% of value. Worst FAFSA treatment by far.
Check this if your kid will file FAFSA on or after the 2024-25 award year AND the rule is still in effect at distribution time.
Quick estimate. If you don't expect ANY need-based aid (combined assets + income put you well above all thresholds), set "no aid" — FAFSA weighting doesn't matter.
The UTMA trap. If you set up a UTMA when the kid was 5, dropped $50K in it, and the kid is now 17 applying to college — that $50K is weighted at 20% for FAFSA = $10K added to expected family contribution. Same $50K in a parent-owned 529 is weighted at 5.64% = $2,820. The UTMA costs you $7,180 of need-based aid. There are ways to reposition (529 super-fund, spend down on legitimate kid expenses pre-FAFSA) but they all take 12-24 months of planning.
STAGE 5 OF 5

Results & verdict

Click to run the full analysis: after-tax value at age 18, FAFSA-adjusted aid, "what if they don't go" cost, and our recommended vehicle mix for your situation.

WANT THE METHODOLOGY BEHIND THIS TOOL?
This calculator pairs with Money Reality HS Edition and Family Office Guide.
The tool gives you the vehicle ranking. The guides give you the surrounding decision — school selection, FAFSA filing timing, scholarship/merit-aid strategy, grandparent-funded plans, and how to size education savings against actual college sticker prices by school type.
Methodology references: Money Reality HS Edition Ch 6 (Funding college without going broke) and FO Guide Ch 7 (Multi-generational education funding).
Read Money Reality HS Edition → Browse all guides
PROFESSIONAL DISCLAIMER · PLEASE READ

Educational and informational purposes only. This calculator and any output it produces are intended solely for general educational and decision-support purposes. They do not constitute investment, tax, legal, accounting, or any other professional advice, and they do not create a fiduciary, attorney-client, accountant-client, or advisor-client relationship of any kind.

Estimates based on your inputs. All results are estimates derived from the data and assumptions you provide. Federal tax brackets, 529 rules, Roth IRA contribution limits and phase-out thresholds, FAFSA rules, and kiddie-tax thresholds change frequently. 2024 reference values used in this tool will be out of date in future years. The Secure Act 2.0 529→Roth rollover and FAFSA Simplification grandparent treatment are subject to future legislative change.

Consult your own qualified professionals. This is not tax, legal, or financial advice. State 529 rules, FAFSA rules, tax credits, and childcare regulations change. Verify current rules with a CPA, financial aid office, or the IRS before relying on any number.