Roth IRA to pay for kids' college vs. 529

[Anonymous]

Please help us think like rich people. We will be opening savings accounts for our kids to pay for college but we've heard that the performance of 529s, fees, and other factors basically make them worst than investing in mutual funds for the same purpose. But, as we understand it, the tax incentive (depending on the state) might make a 529 better. As we were doing additional research (esp. since we might move from where our 529s are opened in a few years) on the various options, we ran into the Roth IRA recommendation. Have you done it? How did you do it? Can it actually be a better vehicle for saving for college? And, if the kid decides not to go to college or can't, is there any way that the money can be used for something like a down payment?

In other words, what is the best way to save for our kids' future (beyond fully contributing to our own retirement) that is as tax sheltered as possible and as flexible as possible in the event that college does not work out (it is our default, obviously, but you never know).

Thanks!

[Anonymous]

529. You may be over thinking this.

[Anonymous]

529 or prepaid.

[Anonymous]

I think you are right to be concerned that 529s may not be the best way to save for college. My understanding is that you should max out your retirement savings before you save anything for college, i.e. $18k per year in 401k and $5500 per year in Roth IRA (per parent). If you are able to do that each year, then you can essentially afford to pay most college expenses out of pocket without hurting your retirement too much (meaning you pay $18k + $5500 in college expenses while DC in school instead of saving for retirement. Also, Roth contributions can be withdrawn for educational expenses without penalty). If you still have money to save, then contribute to 529.

[Anonymous]

Anonymous wrote:I think you are right to be concerned that 529s may not be the best way to save for college. My understanding is that you should max out your retirement savings before you save anything for college, i.e. $18k per year in 401k and $5500 per year in Roth IRA (per parent). If you are able to do that each year, then you can essentially afford to pay most college expenses out of pocket without hurting your retirement too much (meaning you pay $18k + $5500 in college expenses while DC in school instead of saving for retirement. Also, Roth contributions can be withdrawn for educational expenses without penalty). If you still have money to save, then contribute to 529.

This is what we are doing. 401k fully funded, Roth IRA fully funded, the rest to a 529 to the extent that we can.

[Anonymous]

What I've heard is to put the equivalent of $ for a public in-state school in a 529 and then save anything additional in a non-retirement brokerage account. That way, you can use the money for college if DC decides to go private. Or you could use if for whatever you want if DC goes to UMD/UVA, etc.

[Anonymous]

Poor person here . We max out 401k and IRA , and have little in college savings other than what grandparents put in
Since we are older parents , our children will be in college when we are 55, meaning we could take money tax free out of our IRA and help with college if we didn't think we needed it ourselves
Big if!
The problem with the 529 is that it cannot be used for anything other than college. Bottom line for us: our children can get loans and have a lifetime of work ahead of them.

[Anonymous]

401k, then ROTH, then 529. The ROTH principal can be withdrawn for college (earnings stay until retirement), but is there for retirement if you don't need it. The state tax deduction is nice for the 529, but the fees are slightly higher and the penalty for money not used for school is rough. Take care of yourself first.

[Anonymous]

You would be surprised to run numbers on putting in a 529 vs. Putting into a tax efficient fund. This assumes you have maxed 401k, Roth already. Oh and on the odd chance you end up looking for financial aid, 529 hurts your chances worst of all categories of savings discussed do far in this thread.

[Anonymous]

Anonymous wrote:Poor person here . We max out 401k and IRA , and have little in college savings other than what grandparents put in
Since we are older parents , our children will be in college when we are 55, meaning we could take money tax free out of our IRA and help with college if we didn't think we needed it ourselves
Big if!
The problem with the 529 is that it cannot be used for anything other than college. Bottom line for us: our children can get loans and have a lifetime of work ahead of them.

Kids in college at 55 is not older parents.

[Anonymous]

Can't believe so many anti-529ers. What fees are you referring to? Here it is for MD:

http://files.collegesavingsmd.org/cip_disclosure.pdf#page=5

It's $10/year _if_ you have below a certain amount _and_ you do not have automatic monthly payments set up. Then there are fund fees, but most mutual funds will have that as well.

But meanwhile, you get a big state tax benefit AND relatives can contribute and take their OWN tax benefit. So if grandmother wants to set up a fund for her granddaughter, the grandmother gets the tax benefit.

[Anonymous]

The 529 per fund annual management fee is usually about .25 to .75 percent higher than if you just bought the same fund from vanguard, fidelity directly in your taxable brokerage account.

[Anonymous]

Anonymous wrote:Poor person here . We max out 401k and IRA , and have little in college savings other than what grandparents put in
Since we are older parents , our children will be in college when we are 55, meaning we could take money tax free out of our IRA and help with college if we didn't think we needed it ourselves
Big if!
The problem with the 529 is that it cannot be used for anything other than college. Bottom line for us: our children can get loans and have a lifetime of work ahead of them.

You need to be 59 1/2, not 55, to withdraw money without penalty, unless you stop working.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Poor person here . We max out 401k and IRA , and have little in college savings other than what grandparents put in
Since we are older parents , our children will be in college when we are 55, meaning we could take money tax free out of our IRA and help with college if we didn't think we needed it ourselves
Big if!
The problem with the 529 is that it cannot be used for anything other than college. Bottom line for us: our children can get loans and have a lifetime of work ahead of them.

Kids in college at 55 is not older parents.

Again, poor person here . It is when most of your friends and family have kids in college at 40. Perspective , perspective .

[Anonymous]

Anonymous wrote:

Anonymous wrote:Poor person here . We max out 401k and IRA , and have little in college savings other than what grandparents put in
Since we are older parents , our children will be in college when we are 55, meaning we could take money tax free out of our IRA and help with college if we didn't think we needed it ourselves
Big if!
The problem with the 529 is that it cannot be used for anything other than college. Bottom line for us: our children can get loans and have a lifetime of work ahead of them.

You need to be 59 1/2, not 55, to withdraw money without penalty, unless you stop working.

Not correct . You can take money out of a traditional IRA without penalty for down payment on a first home or to pay for higher education. That is why for us, it makes more sense to put money in an IRA and have the option to help pay for college if we are doing okay. At 55, we should have a better idea of our earning and outlook and be able to make a Better decision than now at 38 and 40.