529 v. IRA

[Anonymous]

I am ready to start a college savings plan for my newborn. What do I do? IRA or 529?

[Anonymous]

There is one school of thought that says do a Roth IRA since you can use it for both. That said, 529s are college savings vehicles and ordinary IRAs cannot be tapped for college as they are for retirement.

[Anonymous]

You can't deduct a roth IRA. I already have one of those through my 401K at work.

[Anonymous]

Anonymous wrote:You can't deduct a roth IRA. I already have one of those through my 401K at work.

You can't deduct a 529 on your federal taxes either, and the state tax deduction is usually limited.

[Anonymous]

Hmm, for someone who has the Roth option at work, would it be better to save for college in the Roth IRA outside of work and max the Roth TSP option at work for retirement?

[Anonymous]

First take care of yourself. Max out your 401k/TSP at $17,500 for both parents.

Then start funding college. If you meet income requirements and never expect HHI to go above the requirements go with the Roth IRA, otherwise go with your 529. clarkhoward.com will tell you which 529 to go with.

Even if you think it would be a stretch to do all of this now, I believe this is the most logical way to plan. Your child's college savings doesn't need to be fully funded before freshman orientation and your higher income in 18 years will provide more cash to pay tuition or take out a smaller loan. Worst case scenario would be you funding the childs 529 and missing out on the compounding returns of 30 years of a 401k/TSP. And that recent college graduate isn't going to pay for your retirement