529 or Custodial Roth IRA? How to Decide?

[scfr]

My niece is 16 and will be a HS junior in the fall. This summer she has her first "W-2 job."
I've contributed to her college savings (currently a 529) since she was born.
She's on track to get some pretty substantial scholarships, and it's starting to look like she might be set to get through college with no student loan debt thanks to a combination of scholarships, the 529, her own funds from work, and parental contributions. I'm starting to wonder if it might be better to establish a Custodial Roth IRA for her and match whatever she contributes herself, instead of continuing to contribute to a 529. I wouldn't do both. It's an either/or question. I think that if I set up the Custodial IRA myself I could do it in a way that there would be no fees.

Beyond looking at just the numbers, I think it would be a good way to instill in her the importance of saving for her future from a young age. The lesson of saving for college and trying to get through college with minimal or no debt is already bone-deep, she gets it.

Has anyone else grappled with this decision for a minor (either yours or someone else's)? How did you make your decision?

[Jluke]

Is there such a thing as a custodial Roth IRA? Yes. Answered my own question

If she has W-2 income the contributions cannot exceed what she made (or $5500)

I would do the Roth but it would only be in her name. I wouldn’t mess with the custodial account for that.

[disneysteve]

I would do the Roth but it would only be in her name. I wouldn’t mess with the custodial account for that.

A 16-year-old can't have her own account. It has to be a custodial account until she turns 18. Then it can be transferred into her name. That's what we did for my daughter.

I would also do the Roth. The impact of starting retirement savings at 16 will be far greater than the impact of putting money away for college at that age.

[Gailete]

When I got out of college and got home with $60 to my name and not even enough to buy some new clothes for job hunting/interviews, as well as no money to put down on an apartment, I decided when my boys came I didn't want them going through that. I opened a gift trust for each of them to becomes theirs at the age of 21, which would be about when they might be graduating for college. Although I was never able to get much into the accounts, They both ended up with over $1000. It was money that came in handy for sure to help them at that point of time. I think a lot focus in on paying for college, but after college can also take some expenses that can be big chunks as well. Even a little bit will help them make more informed decisions instead of jumping into the first thing that opens up.

I think that IRA idea sounds great or a gift trust for when she graduates to help get her set up with less chance of moving back in with parents and then taking the next 10 years to move out! Whatever you decide to do, it is very nice of you!

[yugugelizer]

I think the Roth is a great way to get her thinking about retirement savings. My grandfather started a custodial Roth for me and it definitely helped me. I think having a fund already started made it easy to contribute (very small amount initially) and seeing the growth the fund already had achieved really drove home what he had told me many times before about the benefits of compounding.

[Smallsteps]

I turned some funds I had for my kids into an IRA for them after they started working. 2 still have accounts, the third child cashed his out for a trip.
I thought by starting the fund it would do all the things listed by other posters like making it easy for them to contribute / and jump start their plan but NEITHER one has done anything but let the account just grow with the investment it was set up in.
Maybe this gave them a false sense of having some savings but we had talked the whole time about how they could contribute to it and be in better shape not playing catch up later but it fell on deaf ears. I hint/remind/ push them when it comes up but this issue has really caused me frustration.
I also started a fund for a grandchild and it seems as if her parents falsely assume I am paying for everything. I often remind them it is a small gesture not the answer to saving money for her future but I can't force them I guess I will let them learn the hard way.

[msomnipotent]

I also started a fund for a grandchild and it seems as if her parents falsely assume I am paying for everything. I often remind them it is a small gesture not the answer to saving money for her future but I can't force them I guess I will let them learn the hard way.

I worry about this, too. I have a few nieces and nephews that have nothing in the way of college savings and I have been toying around with the idea of starting accounts for them. It is a very real possibility that their parents would assume I have offered to pay for college. So I have decided that they are welcome to any money left in my daughter's 529 once she graduates. I might start tucking away a little here and there for them as nice graduation gifts, but I'm not opening myself up to any liability.

[Smallsteps]

If I had to do this over again I would do it different
I was at their house one time suggested to son in-law we should take her piggy banks (3 of them) FULL of change to open a savings account. He said to wait and ask my daughter when she got home. When I was in another room still able to hear him this is what he said
"it is one thing if your parents want to open an account with their money but why should we put all the piggy bank money in it?" I was floored.

[Gailete]

If I had to do this over again I would do it different
I was at their house one time suggested to son in-law we should take her piggy banks (3 of them) FULL of change to open a savings account. He said to wait and ask my daughter when she got home. When I was in another room still able to hear him this is what he said
"it is one thing if your parents want to open an account with their money but why should we put all the piggy bank money in it?" I was floored.

I do think besides the 'like' button, we need an "You've got to be kidding!" button!

Absolutely ask the child first about their piggy banks, since they were hers, but to think that you should be donating into a bank account for her, is a completely different ballgame. But some people think they hear things that was never said. Wonder what they had planned for that money?

I mentioned once at the place I was paying room and board for that while still in HS I made dinner every Thursday night. The lady that I was paying to feed me somehow seemed to think I was volunteering to make supper every Thursday at there house, after I had been on my feet for 8 hours and had walked a mile each way to work. I think not. Seems little and maybe is now, but just an example of people taking one statement and convoluting it into something else. I've seen it happen many times.

[Thrif-t]

I have both for my kids. Opened the 529s after I was done paying daycare.

Opened Custodial Roth's when they got a little paper route at 7, 9 & 11. They're 22, 20 & 17(18 in sept), so just one custodial left.

But honestly the older one's don't even realize the Roth's. They are both busy with college now so I'll wait to turn it over to them when they are done with school. They don't have much in them a couple thousand each. But I hoped too it would be a start for them and they'd contribute to them when they started working in their professional jobs. Right now all their money is going towards tuition.