Roth IRA vs 529 vs other for college savings

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Elena78
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Roth IRA vs 529 vs other for college savings

Post by Elena78 » Fri Jan 30, 2015 11:04 am

I saw this mentioned on another thread and instead of hijacking I thought I'd start my own.

We have a 2 year old and one on the way. My husband and I are finishing up paying off our loans so we aren't contributing to college funds yet but both of our families have given money toward saving or college. Right now we have $1200 in our savings account for our two year old.

When I as young my family bought us savings bonds for birthdays and Christmas and this seems to have gotten harder.

Should we leave it in savings, open a 529, or open a Roth for our kids? Do they each need their own Roth or 529? Or should we go the old fashioned route and just but them savings bonds?

One thing I worry about is that college might look much different when they are college aged and who knows if we will need to do all of this savings. Maybe college will be free online!

TDAlmighty
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Re: Roth IRA vs 529 vs other for college savings

Post by TDAlmighty » Fri Jan 30, 2015 11:11 am

You cannot just contribute to a Roth IRA in your child's name. Your child needs to have "earned income". If you're referring to the post about 529's, read further down and someone mentions this.

TDAlmighty
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Re: Roth IRA vs 529 vs other for college savings

Post by TDAlmighty » Fri Jan 30, 2015 11:18 am

As far as a parents using their own Roth IRA for college, I think most people around here view it as sort of a last resort. Most people agree that you should definitely contribute the max you can into 401(k)/403b and IRA's before ever putting money into a 529. But after maxing the retirement plans, if you still have money left over then it doesn't hurt to put it into a 529. Some would argue that due to the uncertainties that you mentioned and others, that putting college money into a taxable account is just fine--although if some of the capital gains taxes are increased then 529's will be even better.
Last edited by TDAlmighty on Fri Jan 30, 2015 11:20 am, edited 1 time in total.

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Texas Radio
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Re: Roth IRA vs 529 vs other for college savings

Post by Texas Radio » Fri Jan 30, 2015 11:19 am

short answer: 529
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Mr Rosco
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Re: Roth IRA vs 529 vs other for college savings

Post by Mr Rosco » Fri Jan 30, 2015 1:07 pm

I am in a similar situation. Because my wife and I are not maxing out our Roth IRAs we felt it was better to put that money in the Roth IRA as opposed to opening a 529 plan. I like the flexibility of using the Roth IRA money(contributions) for anything.

rkhusky
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Re: Roth IRA vs 529 vs other for college savings

Post by rkhusky » Fri Jan 30, 2015 4:59 pm

Max out retirement accounts before contributing to 529 (unless 401K choices/expenses are really terrible).

Elena78
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Re: Roth IRA vs 529 vs other for college savings

Post by Elena78 » Fri Jan 30, 2015 5:39 pm

The money I was going to put in the 529 or Roth is not our money, it is money that grandparents and Aunts and uncles have given us to contribute to our child's education. So, my husband and I maxing out our Roth doesn't apply here. But, locking it into a 529 seems weird to me.

livesoft
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Re: Roth IRA vs 529 vs other for college savings

Post by livesoft » Fri Jan 30, 2015 5:59 pm

Money would not be locked into a 529. One can withdraw it at any time and spend it. But if you are going to save for college, it is a superb way to do so. It would be weird to not use a 529 for that purpose given that the money was gifted to the kid(s) for that purpose.
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davebarnes
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Roth IRA

Post by davebarnes » Fri Jan 30, 2015 10:04 pm

Roth IRA for child.
It is not difficult to do.
Just think.
A nerd living in Denver

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LowER
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Re: Roth IRA vs 529 vs other for college savings

Post by LowER » Fri Jan 30, 2015 10:32 pm

Will your child be eligible for financial aid based on your income when they apply to college? The fact that you are here on bogleheads leads me to believe that your children will not be eligible, but I am not a soothsayer. My family is not, so 529 has been perfect: Vanguard funds with low ER and state tax deduction. I do both Roth IRA and 529 for my kids but they haven't made that much, so 529s are going to pull them through college/grad school, mostly funded already.

If you're on the FAFSA fence, IRA may be helpful, if not, 529 has been very good to me and saved thousands in state tax deductions last year alone.

rkhusky
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Re: Roth IRA vs 529 vs other for college savings

Post by rkhusky » Sat Jan 31, 2015 7:26 am

Your child cannot have a Roth unless they have suitable earnings, such a from being a child model or actor.

Put the gifts into a 529. Even if they don't go to college, they may go to a technical, vocational or trade school.

Here is an article that discusses what to do with leftover 529 funds:
http://www.wsj.com/articles/SB100014240 ... 1576663798

Elena78
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Re: Roth IRA vs 529 vs other for college savings

Post by Elena78 » Sat Jan 31, 2015 11:51 am

Thanks, all! We have settled on the 529. We live in a high state income tax state so it will be nice for that. And, I am not that concerned about qualifying for financial aid because it's important to us to limit the amount of student loan debt our kids have (learning from our own mistakes on that one).

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