Roth IRA or 401K $ for my daughter to college?

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weesterdream
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Joined: Mon Feb 05, 2018 4:44 pm

Roth IRA or 401K $ for my daughter to college?

Post by weesterdream »

We are going to send our first daughter to college this fall 2018 (costs ~25K/year). We don't have 529 plan for her or any savings. All we have is our Roth IRA (100K) and 401k (250K). We heard that we can take money from Roth IRA and pay for college without paying tax. We were wondering is that a good idea or bad? if so please advice a better option. Thank you very much.
niceguy7376
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Re: Roth IRA or 401K $ for my daughter to college?

Post by niceguy7376 »

Are these the only two accounts of savings your family has (Both parents combined)?
How many kids do you have
Without more info on your family financial picture, I will recommend Roth IRA
Spirit Rider
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Re: Roth IRA or 401K $ for my daughter to college?

Post by Spirit Rider »

I would amend with the following.

Your retirement accounts Roth or 401k should be your last resort. You should first have her get whatever financial aid she can get, then you should assess your budget and determine what you can do to reduce expenses so you can cash flow as much as possible and she can work during summers to cover some of the expenses.
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weesterdream
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Re: Roth IRA or 401K $ for my daughter to college?

Post by weesterdream »

Niceguy7376- Both wife and husband combined have roth IRA(100K) and 401K(250K). We have 2 kids. One is going to college this fall (2018) and another is going to college next year , fall 2019.

Spirit Rider - wife and husband both combined salary is over $80K, we don't think we are qualified for financial aid. We might have to borrow student loans for her.
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Darth Xanadu
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Re: Roth IRA or 401K $ for my daughter to college?

Post by Darth Xanadu »

Financial Aid, Student Loans, and part-time work for college-age daughter might be your best bet. I'm now sure how old you and spouse are but raiding retirement funds could set your plan back many years.
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camillus
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Re: Roth IRA or 401K $ for my daughter to college?

Post by camillus »

You can withdraw Roth IRA *contributions* tax and penalty free. If you are borderline able to receive aid via the FAFSA, withdrawing Roth IRA contributions could unfortunately disqualify you by putting you over the top since the FAFSA will treat those withdrawals as income.

Assuming you are 50 years old, I'm afraid to tell you that you are behind on your retirement savings: https://www.fidelity.com/viewpoints/ret ... -to-retire


Because of this, in the future I would forgo the Roth IRA and prefer your 401k and traditional IRA. You are likely in retirement to be in a tax bracket below or equal to your current one, the Roth requires you to pay more tax than you would otherwise.

Your kids should work through college, may have to take out student loans, and should focus on getting into a bang-for-buck major. Some folks (my parents, my in-laws) took out home equity loans to pay for kids' college.
Jack FFR1846
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Re: Roth IRA or 401K $ for my daughter to college?

Post by Jack FFR1846 »

By just submitting a completed FAFSA, your kids get to borrow $5500 the first year, $6500 second, $7500 third and fourth. Doesn't seem like much, but unloads $27,000 from you after 4 years. These are only in the kids names, not parents. Once your second is in college, it's possible you may get other aid. Perhaps work-study... I don't know where that kicks in as I've never gotten anything for our son on top of Staffords.
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Edie
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Re: Roth IRA or 401K $ for my daughter to college?

Post by Edie »

Fill out the FAFSA. Without it, your only options for loans will be private lenders (with likely no deferment or forbearance options in the event those are needed). Don't raid your retirement until/unless you have no other options, and not even then. Community college for the first two years is not the "lazy kids" college that the high school counselors tend to make it sound. If our kids didn't get scholarships requiring them to start at the state school freshman year to receive, that's where they would have been (actually, 1 of the 3 we have in college this fall is at community college for just that reason)
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teen persuasion
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Re: Roth IRA or 401K $ for my daughter to college?

Post by teen persuasion »

File the FAFSA before deciding you aren't eligible for any aid!

Apply for scholarships and grants thru your child's HS guidance counselor, local organizations, your employers, your church, etc. Search online for scholarships to apply for, or try your library for books on finding scholarships (or just affording college).

What about your state? My state just started scholarships for state residents that attend certain state schools and have income under $100k-ish (rising as the program is phased in).

Look for ways to cut college costs. Live at home and commute (R & B is $12k/yr here). Rent textbooks and buy used or find online. Any classes you can eliminate thru AP credit?

Have your student work to earn part of the cost - the summers full-time, and part time on campus during the semester. Jobs where you can study while working are ideal (deadtimes as a tutor on duty, computer lab monitor, etc.), or get paid for your notes for a class you already attend anyways. You get the idea.

Consider delaying the older child so both attend simultaneously. FAFSA divides the Expected Family Contribution (EFC) by the number in college. Each might be eligible for more aid, and your expected contribution stays the same (roughly).
02nz
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Re: Roth IRA or 401K $ for my daughter to college?

Post by 02nz »

Agree re: file for FAFSA and using retirement funds only as a last resort. Your income is definitely not too high to qualify for financial aid, but how much your daughter gets obviously depends on the school (aside from outside scholarship sources). The most selective schools almost all guarantee to meet the family’s financial need if admitted. Thus if their formula determines that you can afford to pay $15000 a year and tuition/room/board is $50000, they’ll cover the difference, mostly in grants. This is really a form of price discrimination making the rich pay full price, they can afford it, while students from less well-off families often get a full ride or close to it - if they can get admitted to these elite schools, that is.
KlangFool
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Re: Roth IRA or 401K $ for my daughter to college?

Post by KlangFool »

OP,

You cannot afford to pay $25K per year for your daughter's college education. So, either she receives financial aid or you need to find a cheaper alternative. The combined cost is 25 X 4 X 2 (kids) = 200K. You do not have the money. You should tell your children to scale down their expectation on the amount of money that you can provide.

KlangFool
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spangineer
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Re: Roth IRA or 401K $ for my daughter to college?

Post by spangineer »

weesterdream wrote: Tue Feb 27, 2018 6:12 pm We are going to send our first daughter to college this fall 2018 (costs ~25K/year). We don't have 529 plan for her or any savings. All we have is our Roth IRA (100K) and 401k (250K). We heard that we can take money from Roth IRA and pay for college without paying tax. We were wondering is that a good idea or bad? if so please advice a better option. Thank you very much.
If you pay for kids' college out of retirement funds, you are significantly extending the number of years that you must work or are seriously compromising your quality of life post-retirement.

Consider the possibility that while you are helping your children avoid student loans, you are also giving them the burden of caring for you in your old age.
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BL
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Re: Roth IRA or 401K $ for my daughter to college?

Post by BL »

spangineer wrote: Wed Feb 28, 2018 5:44 pm
If you pay for kids' college out of retirement funds, you are significantly extending the number of years that you must work or are seriously compromising your quality of life post-retirement.

Consider the possibility that while you are helping your children avoid student loans, you are also giving them the burden of caring for you in your old age.
+1
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Nate79
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Re: Roth IRA or 401K $ for my daughter to college?

Post by Nate79 »

KlangFool wrote: Wed Feb 28, 2018 4:43 pm OP,

You cannot afford to pay $25K per year for your daughter's college education. So, either she receives financial aid or you need to find a cheaper alternative. The combined cost is 25 X 4 X 2 (kids) = 200K. You do not have the money. You should tell your children to scale down their expectation on the amount of money that you can provide.

KlangFool
+1

Your kids need to get income and start saving asap. They need to be applying for 100s of scholarships as well, trying their best to get as much money as possible. Unless you want them (and you) saddled with horrible student loan debt they need to scale back their expectations, go to cheaper school. Maybe go to community college for 1-2 years for pre-reqs.
Topic Author
weesterdream
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Re: Roth IRA or 401K $ for my daughter to college?

Post by weesterdream »

Thank you so much all! That was helpful.
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