Roth IRA vs. SC 529 for education

General Off Topic
1

Ok guys have some questions as to what your opinions are in regards to using a Roth IRA vs. State 529 for funding education. A little quick background, my wife and I are 29/31 respectively and don?t have a ton of money to invest here and have a two year old and another any day now. We are close to maxing out our retirement so this ?extra? money wouldn?t have any effect on our retirement (not counting on it) and would be money that we don?t have to get to.

So here is what I have gathered so far:

529:
Pros:
Federal tax-free earnings growth
Tax-free withdrawals on qualified expenses
State tax deductions on contributions
No income or contribution limits (have to have it though?this would be ideal if I had a lot of excess money for education)
I can use it on just about any educational expense as long as it is a qualified expense (this is where I see the state pulling some wool over the eyes)
Qualified expenses include:
Tuition, books, some room and board (only what the school offers, so If they have to live off campus they are only allowed to use what the school says is the standard rate) Have a couple co-workers that have kids in college and they have said that after the first year most students have to live off campus due to no room.

Cons:
Fees (Not a big fan of fees)
Not able to control like I would like to (I don?t take to kind to giving the money to the state to invest for me)
Savings of the 529 plan count toward your FASFA the next year (ie if I fund four years of college then this could jeopardize aid money for other higher education (Masters, etc.)
If they get scholarships then I am stuck with all this money that I have to pay taxes on and a 10% penalty on earnings because I will take it out as a non-qualifying expense.

ROTH IRA

Pros:
Tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution.
The expense for room and board qualifies only to the extent that it is not more than the greater of the following two a

2

Also the final Con that I left off of the Roth IRA was a big one which is the annual limit of $5,500.00

This isn’t a concern now as we arn’t looking at that much now and it looks like the limit is increased each year as well.

3

We used the 529 plan for our kids and set aside some in traditional savings. There were quite a few investment options from which to choose and we picked a couple of accounts that aligned well with our risk tolerance. We get together with a financial advisor and over the years have rebalanced the contributions a little bit between the funds.

So far I haven’t had any complaints with the funds or the process of extracting money for expenses.

IF you have extra money left over in the account you could have a nice start on a college fund for future grandkids.

Boat drinks, Waitress I need 2 more boat drinks!

4

That’s a pretty good tip LunaSea… I did not know about the education savings advantage for the Roth IRA. That being said, one other negative point on the ROTH is that there is an income qualification limit. If you make more than 114K filing single, or 181K household income. This means that Roth IRA is not an option for some people.

5

Yeah I forgot about that one, but my wife is a stay at home mom (social worker) by trade so we won’t be to concerned with the income limitations for a while.

6

I would suggest you see a certified financial planner. Lots of fine print in such investments …