Do’s & Don’ts of College Planning: Roth IRA for College

Roth IRA’s are another option that can be part of your game plan for college funding.

One of the challenges in planning for college is to know what your newborn’s talents will be, what college they should attend, or will they get scholarships or have great athletic talent.  Add the fact, that if you over fund your 529 plan or educational savings account, you will have a 10% penalty to use the monies for non-qualified expenditures.

I know of an instance where the child attended college in England in order to absorb the monies accumulated in the 529 plan.

So how do you adequately fund without over funding?   One means is to use a Roth IRA.  You can withdraw principal contributions from a Roth, if it has been established for at least 5 years, without incurring income tax or a penalty.  This is a means to save tax free and use it for college if necessary.

You can fund a Roth IRA up to $5,500 a year.  There are income restrictions.  Your contributions is phased out if you are married filing jointly and your Adjusted Gross Income is over $167,000.  And you aren’t eligible if your income is over $181,000.   If you are single, your adjusted gross income phase out range is between $105,000 and $120,000.

A word of caution is careful to not jeopardize your own retirement to fund your child’s college.  Or you may decide to work a few years more to replenish the funds distributed from your retirement account.

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