Roth IRA vs 529

[DBQR4CY]

I'm looking into opening accounts for my children that would be used for future educational expenses 13-15 years from now. I'm leaning towards opening a Roth IRA for them given if the money isn't used for education then they already have a retirement account that's been working for them. A 529 does have the benefit where the withdrawals don't count as income compared to the Roth.

What some of you done and what has been your experience with either?

Thanks

 

[DeereClone]

I think your kids have to have income to start a Roth IRA but I could be mistaken.

I started 529s and am considering switching to a general investment account earmarked for them. Just in case they don’t go to college, don’t need the money for college, etc and can use it for something else.

 

[LeaningCy]

If your children won't be using the funds for 13-15 years, I'm assuming they are too young to be earning income which precludes them (or anyone else) from contributing to a Roth IRA in their name. We're doing 529 for our kids and plan to open a Roth for them once they start earning income from part time jobs.

 

[melt]

An early withdraw from a Roth incurs a 10% penalty plus taxes anyway. If you think you’re going to need this money when they’re 18, you’d be throwing a ton of money away paying those penalties. I’d say either do a 529, or if you’re really worried about that, then just put it in a regular brokerage account.

 

[Gonzo]

I'm looking into opening accounts for my children that would be used for future educational expenses 13-15 years from now. I'm leaning towards opening a Roth IRA for them given if the money isn't used for education then they already have a retirement account that's been working for them. A 529 does have the benefit where the withdrawals don't count as income compared to the Roth.

What some of you done and what has been your experience with either?

Thanks

We used a regular IRA, mostly because we got a late start to planning and I rolled over a 401K from a previous position/company that had built up pretty nicely into the IRA. Draws do count as income, and I always have them hold out 30% for state/fed taxes, but there's no early withdrawal penalty if they're used for qualified higher ed purposes.

 

[Gonzo]

An early withdraw from a Roth incurs a 10% penalty plus taxes anyway. If you think you’re going to need this money when they’re 18, you’d be throwing a ton of money away paying those penalties. I’d say either do a 529, or if you’re really worried about that, then just put it in a regular brokerage account.

Not sure about that. We have a regular IRA, not a Roth, but I don't get hit with the 10% penalty if they're for qualified college expenses.

 

[gocy444]

Your kids are lucky to have forward thinking parents. My only advice for them when they go to college is don’t go to a private school unless you have some massive scholarships. I have the same job with my ISU education as my peers who went to “prestigious” private schools. Some of them are paying over $1k a month on student loans and have over $100k in debt.

 

[Gunnerclone]

An early withdraw from a Roth incurs a 10% penalty plus taxes anyway. If you think you’re going to need this money when they’re 18, you’d be throwing a ton of money away paying those penalties. I’d say either do a 529, or if you’re really worried about that, then just put it in a regular brokerage account.

I’m a regular brokerage guy for my kid’s college/whatever fund. E-trade. Easy af.

 

[DBQR4CY]

An early withdraw from a Roth incurs a 10% penalty plus taxes anyway. If you think you’re going to need this money when they’re 18, you’d be throwing a ton of money away paying those penalties. I’d say either do a 529, or if you’re really worried about that, then just put it in a regular brokerage account.

You can make withdrawals from a Roth IRA for educational expenses without a penalty.

 

[DBQR4CY]

Your kids are lucky to have forward thinking parents. My only advice for them when they go to college is don’t go to a private school unless you have some massive scholarships. I have the same job with my ISU education as my peers who went to “prestigious” private schools. Some of them are paying over $1k a month on student loans and have over $100k in debt.

Don't worry, I have debt from both starting at ISU and finishing at a private school here in Iowa. Lol. I know how it goes.

 

[DBQR4CY]

I did find this about opening a Roth IRA for a minor.

Roth IRA for Kids | Plan Benefits, Eligibility, and Investment Options | Fidelity

Opening a Roth IRA for kids can help them get a head start on saving for their financial future. Discover the benefits of helping a child invest early at Fidelity.

www.fidelity.com

 

[trevn]

I'm looking into opening accounts for my children that would be used for future educational expenses 13-15 years from now. I'm leaning towards opening a Roth IRA for them given if the money isn't used for education then they already have a retirement account that's been working for them. A 529 does have the benefit where the withdrawals don't count as income compared to the Roth.

What some of you done and what has been your experience with either?

Thanks

I’m assuming you mean a custodial Roth IRA where you make the decisions on the account until they are 18 and then it has to be rolled into an account solely in their name.

I’m doing the Roth IRA for my kid’s educational expenses. It just worked better in my financial planning and I like the flexibility for the funds if they weren’t needed for educational expenses. The 529 plan is a really good option too. Really you can’t go wrong with either avenue. Just pay attention to the different rules and limits and you’ll be fine.

 

[melt]

You can make withdrawals from a Roth IRA for educational expenses without a penalty.

Huh didn’t know that. Good to know.

 

[BCClone]

The money has to be in a roth for 5 years to be withdrawn for educational purposes also. So you can't stick it in when they start HS. You would pay taxes then.

 

[CycloneDaddy]

We do the Iowa 529 because I like that it saves me around $800 a year in Iowa taxes.

If you see a boat on Saylorville with the name “529” then either my kids got full rides or didnt attend school.

 

[Clonedogg]

An early withdraw from a Roth incurs a 10% penalty plus taxes anyway. If you think you’re going to need this money when they’re 18, you’d be throwing a ton of money away paying those penalties. I’d say either do a 529, or if you’re really worried about that, then just put it in a regular brokerage account.

You can make withdrawals from a Roth IRA for educational expenses without a penalty.

One of my favorite things about a Roth is there are many ways to withdraw the money if you need it.

Charles Schwab

Age 59 and under​

You can withdraw contributions you made to your Roth IRA anytime, tax- and penalty-free. However, you may have to pay taxes and penalties on earnings in your Roth IRA.

 

[BCClone]

We do the Iowa 529 because I like that it saves me around $800 a year in Iowa taxes.

Thats going to start to get less and less.

 

[LostinIowaCity]

This article from Morningstar does a nice job of explaining the pros and cons of each option. I tend to prefer the 529 method as I think it's cleaner and the tax deduction is nice in Iowa. Good luck!

Can I Use a Roth IRA to Pay for College?

Here are the pros and cons of using Roth IRAs for college savings.

www.morningstar.com

 

[brianhos]

I'm looking into opening accounts for my children that would be used for future educational expenses 13-15 years from now. I'm leaning towards opening a Roth IRA for them given if the money isn't used for education then they already have a retirement account that's been working for them. A 529 does have the benefit where the withdrawals don't count as income compared to the Roth.

What some of you done and what has been your experience with either?

Thanks

To fund a roth they need income. I did it for my son once he got a part time job. 529 is a great way to pay for college.

 

[Bestaluckcy]

If inflation remains significant, Ibonds could be an option considered. I know when we saved for our children’s education we used zero coupon bonds as Mrs. Best insisted we did not take any risk of loss. Happened to be that my daughter was in school during the 2006 to 2010 timeframe, so there were some class mates that experienced a sobering lesson in market risks and returns.