I know that I can take money out of a Roth IRA tax free for education expenses and that the money in a Roth IRA grows tax free, so why would I want a 529 instead?
Roth IRA, Traditional IRA, 401K
IRA Questions and Answers
I know that I can take money out of a Roth IRA tax free for education expenses and that the money in a Roth IRA grows tax free, so why would I want a 529 instead?
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3 comments so far...
529 plans can be used for education at any time, but Roth IRA’s shouldn’t be drawn on until you are 59 1/2. Too late for college. LOL
The money you withdraw from your Roth counts as income on the FAFSA and counts more heavily against possible financial aid than if it was in a 529. You can only put $4k a year into a Roth and once you withdraw it, it can’t go back in, so you are eating into your retirement. Many states offer income tax deductions for contributions to a 529.
It won’t be “wasted” if your kid doesn’t use it all as the poster below indicates, but you will have to pay taxes and a penalty.
Not all people can put money in Roth IRAs, the income should be below a certain limit and there is limits on the amount of money you can put in one. The gains from a Roth IRAs can be withdrawn five years from the date it was started without taxes, but the principal can be withdrawn only after 59 yr. The only advantage of 529 is that people with higher income can put money and you can put a lot more than the 4000$(2007) and 5000$ (2008)limits with the Roth IRA. The negative is it can only be used for education…so if the kid ends up as a drop out it will be wasted. You can read up more stuff from wikepedia.
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