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Financial Planning / Paying For College
|Subject: Re: 529 vs. Roth IRA||Date: 5/14/2012 2:53 PM|
|Author: 2gifts||Number: 7963 of 8104|
I have read from a few Financial Planners that opening a Roth IRA allows:
1) More flexibility in usage of funds
2) More investment options
as compared to a 529 plan to fund college education.
For example, there are legal clauses in the Roth IRA law that allows for extraction of funds for education purposes before 59 1/2.
I don't particularly like the choices you have given here. Personally, I view retirement money as being strictly for retirement, and not a place to put money I expect to spend on anything else. And I consider retirement savings to be above college savings since the kids can borrow for their college, or find alternate ways to pay for it, but I cannot borrow for my retirement expenses.
There are also a lot more choices than using an IRA vs. a 529, but I'm not a big fan of 529's. You can always save college money in a taxable account in your name. You don't get the tax-favored treatment of any of the gains, but you get a lot more flexibility in terms of how you invest the money and what you can use it on. Plus, you can only save $5000 per year in a Roth, and that doesn't sound like enough to me.
For us, we saved for our retirement plus we put money aside in our names in a taxable account so that we had flexibility in how we used the funds and more investment options, which is exactly what you say is the advantage of the Roth over the 529.
The problem is that you can only put money in a Roth each year to the limit, and you cannot replace anything you take out, so if you take it out for college, where do your retirement funds come from?
I planned our savings around both the kids' college and our retirement savings, and did not try to put our retirement money towards their college, and we should still end up having paid for their college and retiring.
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