Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

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corp_sharecropper
Posts: 529
Joined: Thu Nov 07, 2013 2:36 pm

Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by corp_sharecropper »

I know the tax benefits of a Roth IRA and I already max out $6K via backdoor + another $4K via mega backdoor. However, inevitably we end up with some money leftover, a fair bit, that gets put in taxable. We do have plenty of extra "room" to contribute via mega backdoor but it's enough of an inconvenience to perform that I try to limit doing it to once per year (late March when receiving bonus). That said, I know Roth IRA isn't looked at for financial aid I'm wondering whether I just need to suck it up and deal with the inconvenience of putting every last dollar in there instead of taxable. BUT, I'm not even sure if we'd be in the ballpark for financial aid regardless of whether or not we saved entirely in Roth due to factors like income and whatever else. Forgive me for not knowing how it all works, we're still 11 years from our oldest applying to college so this is not something I really spend much time investigating. Right now our household gross income is $300K. So is it worthwhile to go through the hassle of putting almost everything in the Roth or are we not going to benefit in terms of scholarship/aid at the point we're at with income? Please just focus on the college aspect, like I said earlier I know the tax implications, I've done the math, and I'm pretty savvy not realizing gains in my taxable account such that I'm fine with the status quo of our contributions and hassle of mega backdoor Roth. I have zero interest in automatic in plan rollovers also.
lazynovice
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by lazynovice »

If you think you will be making 300k or more in the two years before high school and during college, you will not qualify for any need based aid. You should play with at least one school’s net price calculator to get a feel for how high your income and assets can be before you lose access to need based aid.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
Topic Author
corp_sharecropper
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by corp_sharecropper »

lazynovice wrote: Thu Jun 10, 2021 5:22 pm If you think you will be making 300k or more in the two years before high school and during college, you will not qualify for any need based aid. You should play with at least one school’s net price calculator to get a feel for how high your income and assets can be before you lose access to need based aid.
Right on, thanks.
KlangFool
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by KlangFool »

corp_sharecropper wrote: Thu Jun 10, 2021 7:49 pm
lazynovice wrote: Thu Jun 10, 2021 5:22 pm If you think you will be making 300k or more in the two years before high school and during college, you will not qualify for any need based aid. You should play with at least one school’s net price calculator to get a feel for how high your income and assets can be before you lose access to need based aid.
Right on, thanks.
But, if you are early retired 2 years before your kids go to college, then, it may matter. Then, your income would be close to zero. Do you save enough for this to be possible?

KlangFool
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Pessimist55
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by Pessimist55 »

Would the strategy be different if one has 3M in savings but no income (retired)
lazynovice
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by lazynovice »

Pessimist55 wrote: Thu Jun 10, 2021 8:51 pm Would the strategy be different if one has 3M in savings but no income (retired)
If the savings are in non-retirement accounts and throw off dividend income, the it is unlikely you will get need based aid.

https://www.savingforcollege.com/articl ... -the-fafsa
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
marcopolo
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by marcopolo »

1) If you plan to maintain that income level, you are extremely unlikely to get any financial aid that considers assets anyway.

2) How are you set for retirement? The general suggestion to make sure your retirement savings is taken care of before saving for college. With unused space in your 401k, more retirement savings might be better.

3) Why not a 529 plan for money earmarked for college and fill up the rest of you Mega Backdoor Roth for retirement?
Once in a while you get shown the light, in the strangest of places if you look at it right.
professor_americus
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Joined: Fri May 28, 2021 11:25 pm

Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by professor_americus »

How old will you be when kiddos start/finish college? That may play a role.

My plan involves flexibility of option to fully or partially cash-flow college. I'm also using "conventional" and "MBD" Roth space as a flexible college savings vehicle.

Our 2 kids are projected to be in undergrad when I'm 53-59. The Roth contributions can be drawn for college if needed. Can also leverage home equity to pay for college then pay it all off from Roth space once withdrawals are qualified. This allows me to be more aggressively invested versus following a more conservative glidepath for college funding.
Pessimist55
Posts: 157
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by Pessimist55 »

lazynovice wrote: Thu Jun 10, 2021 9:03 pm
Pessimist55 wrote: Thu Jun 10, 2021 8:51 pm Would the strategy be different if one has 3M in savings but no income (retired)
If the savings are in non-retirement accounts and throw off dividend income, the it is unlikely you will get need based aid.

https://www.savingforcollege.com/articl ... -the-fafsa
Not to hijack the thread but at what number is too much to qualify?. If it is say $1M in non retirement account? +Maybe 100k in 529 acct?
lazynovice
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by lazynovice »

Pessimist55 wrote: Thu Jun 10, 2021 11:11 pm
lazynovice wrote: Thu Jun 10, 2021 9:03 pm
Pessimist55 wrote: Thu Jun 10, 2021 8:51 pm Would the strategy be different if one has 3M in savings but no income (retired)
If the savings are in non-retirement accounts and throw off dividend income, the it is unlikely you will get need based aid.

https://www.savingforcollege.com/articl ... -the-fafsa
Not to hijack the thread but at what number is too much to qualify?. If it is say $1M in non retirement account? +Maybe 100k in 529 acct?
There really is no substitute for playing with the EFC calculator or a school’s net price calculator:

https://bigfuture.collegeboard.org/pay- ... calculator#

Here is Ohio State’s NPC

https://sfa.osu.edu/incoming-freshmen/a ... calculator

I suggest you put in assumptions and keep changing them to see what happens. The EFC is what you are expected to pay. Some schools will offer grants to make up the difference but others only offer loans. Not all schools “meet full need.”

In the EFC you will see that there is a blank for untaxed income. That is where they add back your 401(k) contributions. Many schools expect you to stop contributing to those to pay for school.
“I didn’t want my sailboat to be in the driveway when I died.” Nomadland
HereToLearn
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Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by HereToLearn »

Pessimist55 wrote: Thu Jun 10, 2021 11:11 pm
lazynovice wrote: Thu Jun 10, 2021 9:03 pm
Pessimist55 wrote: Thu Jun 10, 2021 8:51 pm Would the strategy be different if one has 3M in savings but no income (retired)
If the savings are in non-retirement accounts and throw off dividend income, the it is unlikely you will get need based aid.

https://www.savingforcollege.com/articl ... -the-fafsa
Not to hijack the thread but at what number is too much to qualify?. If it is say $1M in non retirement account? +Maybe 100k in 529 acct?
You can just google any college's name and Net Price Calculator. They vary tremendously, so perhaps just start with your and your spouse's own colleges and maybe your state school? It is worth running a few different types of colleges to see the different formulas used.
Last edited by HereToLearn on Fri Jun 11, 2021 8:51 am, edited 1 time in total.
Pessimist55
Posts: 157
Joined: Thu May 14, 2015 12:16 am

Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by Pessimist55 »

So I put in $1M in parent's assets. 15k Agi from dividends and 800k equity in house. Student 0 income
Parent.
Ca resident. Single. 2 family members.
Efc FM 46K
IM 85K.

Definitely won't qualify but I am a good 15 years away
Ddd7651
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Joined: Tue May 07, 2019 2:15 pm

Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by Ddd7651 »

I do something similar. We put extra money into a mega backdoor roth after our regular backdoor roth. We put a very minimal amount into a 529 for college in case of scholarships or not going to college. The rest up to 10k in the 529 is earmarked for private school for state tax benefits and my DW retiring before our kids are in high school. (Hello 529 private school benefits) Our intent is to never borrow money ever again. We will apply for scholarships and everything we can which means the mega-backdoor roth is icing on our retirement cake if we don't have to tap it much. We already have our main retirement covered elsewhere. I have young kids so we are looking far into the future.
StealthRabbit
Posts: 557
Joined: Sat Jun 13, 2009 1:25 am

Re: Does it help (for me) to put money in Roth IRA vs taxable for kids' college tuition?

Post by StealthRabbit »

I matched 100% of the kids wages into their own Roths. FAFSA didn't use their IRAs or their home equity for student portion of EFC. They each had plenty of dough to cover total financial needs by college.

If I were to fund someone else's college, I would stay fully invested and pay off their zero interest student loans, once they graduated.
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