Hauling Lobster Traps in My Formative Years
My family has lobstered the waters off Maine for generations. Growing up, I spent more summer mornings on a boat than I did on land, riding along with my dad, uncles, and cousins before eventually getting my own student license through my uncle’s sponsorship.
The spring before I turned 12, a few of my cousins and I spent weekends in the garage repairing old traps and learning how to build new ones from chicken wire before setting them in the water for the season. By June, we were hauling traps before most people were awake.
I worked summers through high school, and with the money I made, I was supposed to be saving for college. Like most New England teenagers, I was more inclined towards the newest Red Sox hat or most popular Patriots, Bruins, or Celtics jersey.
At the time, I wasn’t really focused on the value of that paycheck, but more about the experience of it all. Boats on the water before sunrise to sunset from May through October, and the older lobstermen who knew every ledge and rock on the bottom of the dock.
As I got older, I realized there is something valuable about having a hand in supporting your own education, and I’m proud I was able to help pay for school while learning about responsibility, a strong work ethic, and the value of finding your community.
This unwittingly became the backbone of my career in financial planning. Today, as an advisor I often think about the many lessons those summers taught me. This foundation gives me perspective when I advise clients on saving for college with their goals in mind based on a strategy that involves layered funding sources.
Things to Think About When Planning for the Cost of College
For those of us focused on guiding our clients through nuanced financial planning, what we often see isn’t families failing to save enough, it’s inadvertently saving in accounts that don’t fully match the goal, timeline, tax situation, or flexibility they need.
This is true in saving for college as well. If you’re a parent or grandparent who is roughly 5–15 years away from tuition bills, thinking strategically about a robust and flexible college savings plan should be on your agenda. The answers to the following questions should guide your discussions and decisions:
Does the account allow for tax-free growth or tax-free withdrawals for education expenses?
Whose name is the money in, and when does that control change?
How is the account defined on the FAFSA and other financial aid calculations?
College planning is rarely about finding one perfect account. More often, it’s about building flexibility around a future that may still evolve over time.
Types of Accounts
529 Plans
For many families saving for college, the 529 becomes the foundational account not necessarily because it’s perfect, but because it balances tax efficiency with increased flexibility.
Contributions grow tax-free, and withdrawals used for qualified education expenses are also tax-free. Over time, that compounding may become meaningful.
These accounts have also become more flexible than many people realize:
- Up to $10,000/year can be used for K-12 tuition
- Certain apprenticeship programs qualify
- Limited student loan repayment is allowed
- You also can transfer unused balances between beneficiaries in many situations
- Recent rule changes now allow unused 529 funds to potentially roll into a Roth IRA for the beneficiary, subject to limits and requirements
Grandparent-owned 529 plans have also become more attractive under current FAFSA rules:
- Grandparent-owned 529 assets are not reported on the FAFSA
- Distributions from grandparent-owned 529s are no longer counted as untaxed student income under current FAFSA rules (parent-owned 529s are still assessed as parental assets up to 5.64%)
- Can provide additional financial aid planning flexibility for multigenerational families
- May pair well with broader gifting and estate planning strategies for grandparents helping fund education costs (which addresses the question of what happens if the child doesn’t end up needing all the money in the account for college)
Custodial Roth IRA — Long Term Planning
If a child has earned income, whether that’s babysitting, lifeguarding, summer jobs, or yes, hauling lobster traps, they can contribute to a Roth IRA. The contribution limit is generally the lesser of:
- Their earned income for the year, or
- The annual IRA contribution limit
What makes this interesting for college planning is its flexibility. Roth IRA contributions can always be withdrawn tax and penalty-free. Earnings used for qualified education expenses can also avoid the early withdrawal penalty.
And if the money doesn’t end up being needed for school?
Now you have a Roth IRA for a teenager who potentially has 40–50 years of compounding interest ahead of them, compared to trying to save those same dollars later in life.
For families thinking long term, this may be a useful planning tool.
Custodial Brokerage Accounts (UTMA/UGMA) — Flexible, But With Tradeoffs
Custodial brokerage accounts can have a role in a layered strategy, but they come with a few important considerations.
These accounts are owned by the child, with a parent acting as custodian until the child reaches the age of majority.
The main advantage is flexibility: the money does not have to be used for education.
These accounts can be utilized in situations where the goal extends beyond education and into broader wealth transfer or financial responsibility conversations.
But that flexibility cuts both ways.
Once the child reaches the applicable age (usually 18 or 21 depending on the state) the account legally becomes theirs outright. If they decide to spend it on something other than tuition, that’s their decision.
The second issue is financial aid treatment. Assets in a child’s name generally count more heavily against financial aid eligibility than parental assets do. Large custodial account balances can impact aid calculations more than many families expect.
These accounts can still be useful in certain situations, but they’re rarely the first place we direct families specifically in saving for college.
Taxable Brokerage Accounts — Flexibility Option
Another option that can make sense for some families is simply building a taxable brokerage account in the parents’ names and mentally earmarking part of it for future education expenses.
Unlike a 529 account, there’s no specific tax advantage tied to education spending. You won’t get tax-free growth or tax-free qualified withdrawals.
But what you do gain is flexibility. One of the realities of planning for children or grandchildren is that life rarely unfolds in a perfectly linear way
If your child ultimately decides not to attend college, or takes a different path entirely, those dollars can still be used however the family chooses.
That might mean:
- Helping with a down payment on a first home
- Assisting with wedding expenses
- Supporting a business venture
- Funding graduate school at a later date
- Reallocating the dollars toward broader family goals
The account also remains fully controlled by the parents, which can be appealing for families who value optionality.
In practice, we often see taxable brokerage accounts used alongside 529 plans rather than instead of them. The 529 handles the tax-advantaged core education savings, while the taxable account aims to provide a more flexible pool of dollars that can adapt as life unfolds.
Cash Flow and Your Own Roth IRA
Sometimes the appropriate strategy is simpler than people expect. For families whose peak earning years overlap with college years, covering a portion of tuition directly from cash flow can make a lot of sense.
That’s why we usually look at overall cash flow planning first before automatically assuming every dollar needs to be pre-funded years in advance.
Another quieter planning tool worth knowing about: your own Roth IRA contributions can generally be withdrawn tax- and penalty-free at any time.
Although we don’t generally advise that retirement accounts turn into saving for college accounts, this may provide flexibility and serve as a useful backup option in certain situations.
Grandparent Planning — One of the Most Meaningful Conversations We Have
If you’re a grandparent reading this, or an adult child thinking about starting this conversation with your parents, this is one of the most impactful discussions we see families have.
At TCI, we often talk about the idea of giving with “warm hands” versus “cold hands.”
Cold-hand gifts are assets passed through an estate after someone is gone.
Warm-hand gifts are the ones where you get to watch the impact happen in real time:
- A grandchild graduating with less debt
- Helping fund study abroad
- Supporting trade school or graduate school
- Giving young parents more breathing room financially
In practice, we often see gifts during a grandchild’s younger years create far more meaningful impact than the same dollars passed decades later through an estate. Not just because of compounding, but because the timing matters. A few strategies worth knowing about:
Direct Tuition Payments
Paying tuition directly to an educational institution does not count against annual gift tax exclusions. Importantly, the payment must go directly to the school, not to the student or parents. This is one tool available for families looking to help with education costs.
“Superfunding” a 529
Grandparents can front-load multiple years of annual gift exclusions into a 529 plan at once. For families focused on both saving for college and estate planning, this can be an efficient strategy.
We’ve been in many of these conversations with multiple generations around the same table, and honestly, grandparents often walk away feeling relieved. Many already wanted to help — they just didn’t realize how many good planning options existed to do it thoughtfully.
Putting It All Together
Most families don’t need every account type. Usually, the strategy will center around one primary account, often a 529 plan, with additional flexibility layered around it depending on the situation. Maybe that means:
- A Roth IRA funded from summer job income (think hauling lobster traps)
- Cash flow covering later college years
- A grandparent helping with a study abroad program
- A taxable brokerage account earmarked for broader life goals
- A custodial account serving a broader purpose beyond education
The important part is less about finding the “perfect” account and more about selecting the strategy that includes enough variability to flexibly match your family’s goals and needs.
A Final Thought
For many families, graduation season becomes a reminder of how quickly childhood and the college years move. With thoughtful planning, families may be better positioned to make informed decisions about saving for education.
The teens hauling traps in Maine this summer probably won’t be thinking about Roth IRAs or FAFSA rules any more than I did. However, early family conversations around education funding matter, and ideally, those conversations happen long before the tuition bills begin.
At TCI, these are the kinds of conversations we enjoy helping families think through thoughtfully and intentionally across generations.
TCI Wealth Advisors, Inc. is an SEC registered investment advisor. This material is provided for informational purposes only and should not be construed as investment advice or a recommendation. Due to various factors, including changing market conditions and/or applicable laws, the content may no longer be reflective of current opinions or positions. TCI is neither a law firm, nor a certified public accounting firm and this material should not be construed as legal or accounting advice. Moreover, you should not assume that any discussion or information contained herein serves as the receipt of, or as a substitute for, personalized investment advice. No amount of prior experience or success should be construed that a certain level of results or satisfaction will be achieved if TCI is engaged, or continues to be engaged, to provide investment advisory services.
