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I assume you are referring to using YOUR Roth IRA, not setting up a Roth IRA in the child's name.

There are certain advantages and disadvantages of using you and/or your spouse's Roth IRA as savings vehicles for children's college costs. Here are the one's I'm aware of:


1. You may withdraw the 'basis' (all past contributions plus all past Roth conversions that occured at least 5 years priviously) at any time for any purpose without tax or penalty.

2. If the Roth withdrawal exceeds the basis and gets into the earnings, those earnings will be includable as income to you for the year, but if you are under 59.5 and the withdrawal does not exceed the amount of qualifying education expenses (Tuition + Required Books and Supplies + Room and Board if at least 1/2 time - all scholarships or other tax advantaged benefits), then the 10% early withdrawal penalty will not be assessed.

3. If the student is a FAFSA dependent, the Roth value will not be included in your net worth that is used to determine the amount of Federally subsidized loans, grants or work study the student will be eligible for.

4. If the student does not require college financial aid (he/she attends a military academy, is on full scholarship or does not attend college) you are free to use the Roth for just about anything else you wish, unlike an unused 529 plan which must then be retitled to another family member or if money is withdrawn and not used for qualifying educational expenses, the earnings part of the withdrawal will be taxed as ordinary income and subject to a 10% penalty.

5. Almost unlimited investment options in the Roth whereas a 529 plan typically has few investment options and additional annual account expenses.


1. Contributions are limited to $5,000/yr ($6,000 if 50 or older) per spouse, and either or both of the spouses must have a combined salary of at least the anmount of the annual contribution made. More dollars can be added to ones Roth IRA through Roth conversions, but the amount of the conversion that involves pretax dollars will be includable as ordinary income for the year of the conversion.

2. The withdrawn amount must be included as household income in next year's FAFSA application.

3. The amount withdrawn from the Roth may be needed by the parents for their retirement.

4. A form 8606 must be filed each year Roth withdrawals are made. This can incrementally add to tax preparation costs for those who pay others to do their taxes for them.

The workaround to all of these Disadvantage is for grandparents to save for their grandchildren's college costs in their Roth(s).

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