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Usually I think I have a good grip on these things, but I find myself stumped as to how to manage the upcoming college funds of my twins to be next January.

Here's the deal:

Have UTMA regret with my 3-year old's account. It's growing so well based on some solid mechanical investing (MI), that I fear the day she gets access to a huge portfolio at age 18. (I expect it to be somewhere between $125K and $200K. I plan to instill in her the best of money wisdom that I can, but you know...

So my grandmother expects to gift the same $10,000 to the twins. UTMA saves up to $329/year in federal taxes (0% first $700, 15% next $700, my rate is 31%). I find it somewhat of a disadvantage not being able to use 10-15% margin because margin is not allowed in UTMA/UGMA's.


Traditional-IRA - NOPE, not even close to qualifying.

Roths - already maxed out and probably won't qualify for them after next year due to income phase outs.

Non-deductible IRA's - Usually this one is ugly, but Roth's are not an option beyond my current retirement planning, so I think this could work. My understanding is that you can still do $2K/year at any income level. Yes, it gets taxed at full ordinary income tax rates, but since I typically do monthly and quarterly rebalancing of the growth/momentum portion of the portfolio (about 2/3rds of total value), this may not be so bad. I read that I can withdraw before 59 1/2 if it is for education or for up to $10,000 (lifetime) for a first time home purchase which can apply to my kids. If they don't go to college/buy a home, it stays tax sheltered in my name. Oh yea, it will be a pain managing multiple accounts since I can't dump all $10K in at once. Also, no margin.

Traditional taxable account in my name: I get control, lose some tax advantages (most notably at age 14 when the kiddie tax no longer applies). I could direct it to first home downpayment help, weddings, yadda yadda. There may be a significant downside in terms of qualifying for financial aid if the rules don't change much 18 years from now. Margin available. Can unify into a single account vs 2 to 4 with other options.

Are my assumptions about the different types of accounts and how they can be used correct?

Any help would be appreciated.

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