A Roth IRA allows you to eliminate a bit of the guesswork by having a back-up plan available for college expenses if needed -- or you can simply enjoy the funds during retirement.
There are pros and cons to every type of account, but the Roth IRA has built-in benefits that makes it too good to pass over. As long as your distribution is not more than your qualified higher education expenses. All you have to do is pay taxes on the earnings portion of your withdrawal which may be a better deal than signing up for debt. Discounted offers are only available to new members. Stock Advisor will renew at the then current list price. Investing Best Accounts. Stock Market Basics.
Stock Market. Given how good a Roth IRA is for retirement savings, does it make sense to use it to fund college? Roth withdrawals count as income for financial aid purposes and can affect how much aid will be offered. Giving away Roth money cuts retirement funds—and Roth savings come tax free when you withdraw them, with no required minimum distributions.
Many of the advantages that make a Roth IRA a great way to save for retirement make it an ideal way to save for college, too. Like the , there is no income tax deduction when you contribute to a Roth IRA. Instead, your contributions and earnings grow tax-free.
First, the annual contribution limit is low. Second, Roth IRAs do have income limits. However, withdrawals are counted, and that can affect your financial aid package. Finally, by using a retirement account for college savings, you lower the amount of money you can save for your own retirement. If using a Roth to save for college impacts your retirement savings because you bump up against annual contribution limits, it might be better to use the Start with the list of all state plans on the SavingsforCollege.
Still, opening one in your home state may have advantages. Once you've chosen your plan, complete the application. Create a savings goal and a budget that ensures you reach it. Set up your funding mechanism, such as direct deposits, then choose your investment options.
Start saving. Not many, but there are a few. You have to use the money for the intended purposes or pay a penalty to get it back. You need to check plans carefully for good performance and fees. Not necessarily, as they also have disadvantages. For one thing, the annual contribution is low, compared to what you can contribute to a There's no state income tax deduction for Roth contributions. They also count as income on financial aid applications, and giving away Roth money cuts retirement funds.
It can be difficult to choose between a plan and a Roth IRA. This can be a good strategy. You can use the money from the first and then tap the Roth for any leftover expenses. Whatever money is left in the Roth can stay there for your retirement.
There is, however, an exception for distributions used to pay qualified higher education expenses. You will still pay income tax on the portion of the distribution that would otherwise have been subject to income tax.
The qualified higher education expenses must be for you, your spouse, your children or your grandchildren. Qualified higher education expenses include tuition, fees, books, supplies and equipment, as well as room and board if the student is enrolled at least half time in a degree program. Although the amounts in a traditional IRA are sheltered from need-based financial aid, the amounts withdrawn may count as income and affect eligibility for need-based financial aid during the next year.
If the distribution is tax-free, it counts as untaxed income and still impacts the need analysis process.
The current year contributions to a traditional IRA are counted as untaxed income, even though the amounts in the IRA are ignored as an asset. The distribution must occur during the same year in which the qualified expenses are paid, so you cannot withdraw the funds a year before or a year afterward.
You are using up your retirement savings. One of the first questions you should consider is whether or not your state offers a tax benefit for contributing to a if so, one point in favor of using s for college savings. It's true, however, that Roth IRAs give you more freedom when it comes to investment selection--with s you're limited to a menu of choices. I'll score this in favor of the Roth IRA, but with the caveat that many plans offer low-cost investments that are sensibly allocated and professionally rebalanced, which I consider a benefit.
Qualified education expenses are an exception to the early withdrawal penalty.
0コメント