I've been using a Roth IRA account to save for my child's college education. I figure the returns are tax-free so it's probably as good if not better than other college-saving alternatives. Do you think this is a good idea?

-- James, Seattle

Well, I wouldn't give your strategy a flunking grade, but I wouldn't give it an A either. That's because I have some reservations about using a plan designed for retirement as a way to accumulate money for college tuition -- and I think once you hear my reservations, you'll share them too.

Let's start with a discussion of those tax-free returns.

You're right that a Roth IRA can generate tax-free gains that can be a plus for building a fund for retirement or tuition or anything else for that matter. But it's hardly a given that the money you pull out of a Roth IRA will completely escape taxes, or for that matter, a possible 10 percent penalty.

Basically, the money you have in a Roth falls into two broad categories: the contributions you've made to the account and the earnings on those contributions. Any regular annual contributions you make to a Roth can pulled out tax-free at any time for any purpose. That makes sense since you made those contributions with after-tax dollars and thus you're only getting back money you've already paid tax on.

A more complicated set of rules applies, however, if you contributed to a regular IRA and then rolled that IRA into a Roth. But, as a general rule, as long as you wait five years after the rollover, then the original contributions you made to your IRA-turned-Roth IRA can be withdrawn free of taxes too.

The second type of money in your Roth account is the earnings your contributions have generated. The tax treatment of earnings gets a bit tricky. Basically, withdrawals of earnings are tax free as long as they are "qualified withdrawals." To meet the tax code's definition of "qualified," the withdrawal must meet two tests.

First, there's the five-year test -- that is, your Roth must be at least five years old. Actually, the five-year rule is a bit more lenient than that. The meter begins ticking on January 1 of the tax year in which you opened the account. So if you opened your account in, say, October 2001, your five-year period begins on January 1, 2001. Better yet, if you open a Roth by April 15th of this year but designate the contribution for the 2001 tax year, the clock still begins on January 1, 2001.

In addition to meeting the five-year test, you must also be 59 1/2 or older when you make the withdrawal, or the withdrawal must be a distribution made either to your beneficiaries after your death or to pay for first-time homebuyer expenses or to pay expenses related to a disability you've incurred.

So as long as you've had a Roth account at least five years and you're 59 1/2 or older when you make withdrawals, none of the money you pull out of the account would be taxed, whether you use it for college expenses or anything else. If you don't meet the criteria I described above, however, then the portion of the withdrawal that represents earnings in the account -- and possibly some of the rollover contributions, if any -- will be taxed. (In a rare display of magnanimity, the IRS assumes that all withdrawals are your non-taxable contributions first and only after those funds are exhausted do you move on to earnings.)

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Withdrawals that are taxed are also subject to a 10 percent penalty, although the penalty is waived in certain cases. Fortunately for you, one of those cases is withdrawals for college expenses for yourself, your spouse or your kids. (For a complete rundown on the ins and outs of Roths and taxes, click here.)

Still, as you can see, it's not a given that all the money you'll be pulling from a Roth will be tax free.

But this potential problem aside, there's another equally, if not more important, reason I think a Roth isn't an ideal way to save for college. And that is, you're using up one of your retirement-savings options. Basically, we've got only a few tax-advantaged alternatives for saving for retirement. So I think we've got to take full advantage of those plans for retirement. That's especially true when there are other tax-advantaged options for saving for college, such as 529 plans and Education Savings Accounts, that have comparable or even better features than the Roth.

In short, I think most people are better off using these vehicles for college savings and leaving the Roth free for retirement savings. In fact, I'd go even further and say most of us should make sure we're fully funding our retirement savings options -- 401(k)s, IRAs and the like -- and only then should we be setting aside money for our kids' education. I'm not being heartless, only realistic. After all, if your child's college fund comes up short there's a good chance a friendly financial aid officer may fork over some grant or loan money to make up the difference. But if you come up short on money in your retirement, well, you're on your own baby.

So I suggest you hold onto that money in your Roth, but earmark it for retirement. And if you have extra money after saving for retirement each year, then check out the college savings options mentioned above. Better to have your kids take on some loans or even work a part-time job to get through college than to stroll leisurely through the halls of academe on your nickel, only to have to support you later on because you never accumulated a retirement fund.

Walter Updegrave is the author of Investing for the Financially Challenged and can be seen regularly Monday mornings at 8:40 am on CNNfn.