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College savings or retirement fund: where to invest?

Between a college fund and retirement savings, which takes top priority? If it's in the form of a Roth IRA, retirement saving is the way to go.

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Muhammed Muheisen/AP/File
A bird used by a Chinese man, unseen, to perform, holds a yuan collected from a tourist as it prepares to drop it into a piggy bank, in Houhai district, in Beijing, China, in this 2010 file photo. When it comes to retirement versus college savings, experts argue that it's better to invest in a retirement account, particularly if it's in the form of a Roth IRA.

My partners at Brightscope have been busy building out their AdvisorPages service and one of the coolest parts of it has to be the Advisor Q&A feature.  Basically, people with financial or investing questions can throw a query out and professional financial advisers get to take their best crack at it and bat their answers around publicly.

Check this out:

Q: My husband and I (both in our early thirties) have two children, aged 6 and 9. We want to be saving for their colleges but don't want to neglect our retirement funds either. What's the best ratio for saving between these two funds?

Here's one of the answers given, you can head over at the link above for more...

I always recommend my clients opt for investing in a Roth IRA rather than a college plan whenever they qualify to participate in the Roth option, and here is why. First, the tax scenario is identical. You deposit after tax income into the plan, it grows free of tax, and if used appropriately, there is no tax nor penalty on the distribution. The Roth rules allow you to make distributions from the Roth IRA for your kids college expenses without taxation nor penalties, just like you could from college accounts. However, if your child does not go to college, gets scholarships for the whole thing (wouldn’t we be so lucky), or just doesn’t spend all our savings, in the college plan your only option is to transfer to another beneficiary of pay the tax and the penalty. In the Roth, anything not used for college is in our tax advantaged retirement account!

The only problem comes in if you cannot qualify for a Roth option as there are income restrictions applicable, or if you desire to save more than the allowed amount.

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