College savings plans - Roth vs. 529

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whatevernow
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College savings plans - Roth vs. 529

Post by whatevernow » Wed Jul 11, 2018 3:08 pm

Some people have mentioned setting up a Roth for college savings instead of a 529 plan, as they don't like the restrictions on 529s.
The reason I decided against a Roth for college savings is that in the even of a divorce (not that I'm planning on it) the court would look at the Roth as a retirement fund and it would be hard to prove it was intended as a college savings plan. And it would be split between my spouse and I. Whereas with a 529 it is obvious it was set up for college savings, for the benefit of the child only. Knowing this, would most people still be more comfortable with a Roth? I don't plan on getting divorced, but my dad left my mom after 30 years of marriage and I know it could happen. I wouldn't want the college money being eroded in a divorce settlement.

I feel like the funds are safer in a 529 and I don't care if the money is restricted to college expenses, because if one of my kids doesn't go to college, and I can transfer their 529 money into the other kid's 529. As I've said previously, I've had quite a few financial advisers tell me to dismantle the plans and put the funds elsewhere. I don't want to do that as there could be tax consequences, and I don't really see a reason to either. But it seems like there are lots of people opposed to 529s.

soccerrules
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Re: College savings plans - Roth vs. 529

Post by soccerrules » Wed Jul 11, 2018 3:23 pm

There are mixed feelings on 529's. A lot also depends on how much of college you plan to pay.

If you receive an income tax benefit from your state for contributing to 529, do at a minimum enough to get full benefit each year.

You can do more to 529 or contribute to a taxable account with the intent to use the funds for college and then if you don't need them-- you are A-OK.

Yes you can move money to other children, grandchildren etc.

Also you could consider cash flowing some of the expense over the 4 years. I currently use 529 to pay tuition and then cash flow apartment, utilities and food allowance. I keep receipts for these expenses in the event I have funds left over after the last child (very doubtful)

Most posts I have read have suggest not to over-fund the 529 unless you have more money than you know what to do with and in that case it really doesn't matter.
Don't let your outflow exceed your income or your upkeep will be your downfall.

bloom2708
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Re: College savings plans - Roth vs. 529

Post by bloom2708 » Wed Jul 11, 2018 3:28 pm

The general guide is to prioritize your retirement. Maxing pre-tax 401ks, 2 Roth IRAs, HSA. You can borrow for college but not for retirement.

If you have more funds to invest then taxable and 529 are good options. We designated 50% of college savings in a taxable (3 fund style) and 50% to a 529 (age based funds) for each of 3 kids.

I started them quite aggressive and dial them back as the kids get closer to college (oldest is in college). We should have enough for each, but can cash flow some expenses. I plan to use the 529s first and then taxable. If #2 and #2 get more scholarships, we can adjust on the fly. With the long horizons, the 529s grew pretty nicely. It will be good to have options and flexibility.

I would use a Roth with the intention of retirement, not college. For many it is the last money to be used, although it can be used if needed.
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delamer
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Re: College savings plans - Roth vs. 529

Post by delamer » Wed Jul 11, 2018 4:08 pm

Financial Advisors who charge based on a percentage of portfolio don’t make any money off of assets that aren’t under their control.

So they have an incentive to push Roths instead of 529s.

I have never heard your rationale used to prefer a 529 over a Roth, but we all have experiences that impact how we handle our money. Being a fan of 529s myself, I don’t see any issue with preferring a 529 over a Roth.

Grt2bOutdoors
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Re: College savings plans - Roth vs. 529

Post by Grt2bOutdoors » Wed Jul 11, 2018 4:18 pm

In a divorce settlement, the judge could decree you are both liable for college costs - 529 plan or not. The judge probably will not decree retirement assets be used (Roth,401k) to pay for it.
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Cop51
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Re: College savings plans - Roth vs. 529

Post by Cop51 » Wed Jul 11, 2018 4:19 pm

Review your states sponsored 529 plan. Most offer benefits for having an account with them and maybe a state income tax break. Those benefits shouldn’t be over looked.

xenochrony
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Re: College savings plans - Roth vs. 529

Post by xenochrony » Wed Jul 11, 2018 7:35 pm

whatevernow wrote:
Wed Jul 11, 2018 3:08 pm
Some people have mentioned setting up a Roth for college savings instead of a 529 plan, as they don't like the restrictions on 529s.
The reason I decided against a Roth for college savings is that in the even of a divorce (not that I'm planning on it) the court would look at the Roth as a retirement fund and it would be hard to prove it was intended as a college savings plan. And it would be split between my spouse and I. Whereas with a 529 it is obvious it was set up for college savings, for the benefit of the child only. Knowing this, would most people still be more comfortable with a Roth? I don't plan on getting divorced, but my dad left my mom after 30 years of marriage and I know it could happen. I wouldn't want the college money being eroded in a divorce settlement.

I feel like the funds are safer in a 529 and I don't care if the money is restricted to college expenses, because if one of my kids doesn't go to college, and I can transfer their 529 money into the other kid's 529. As I've said previously, I've had quite a few financial advisers tell me to dismantle the plans and put the funds elsewhere. I don't want to do that as there could be tax consequences, and I don't really see a reason to either. But it seems like there are lots of people opposed to 529s.
This is one of several reasons why I favored the 529 account for funding my two children's college education.

mhalley
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Re: College savings plans - Roth vs. 529

Post by mhalley » Wed Jul 11, 2018 9:14 pm

I am not in favor of using retirement accounts for other purposes. There are many ways to pay for college, but only one to pay for retirement. If you don't like 529 plan restrictions, either set up an UTMA account or just invest in a taxable account.

Bacchus01
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Re: College savings plans - Roth vs. 529

Post by Bacchus01 » Wed Jul 11, 2018 9:36 pm

mhalley wrote:
Wed Jul 11, 2018 9:14 pm
I am not in favor of using retirement accounts for other purposes. There are many ways to pay for college, but only one to pay for retirement. If you don't like 529 plan restrictions, either set up an UTMA account or just invest in a taxable account.
What? There are just as many ways for retirement as there is college. I don’t understand your point.

HereToLearn
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Re: College savings plans - Roth vs. 529

Post by HereToLearn » Wed Jul 11, 2018 9:41 pm

Grt2bOutdoors wrote:
Wed Jul 11, 2018 4:18 pm
In a divorce settlement, the judge could decree you are both liable for college costs - 529 plan or not. The judge probably will not decree retirement assets be used (Roth,401k) to pay for it.
I think judge's orders vary by state. In some states, the judge can only order a spouse to cover up to the in-state cos of tuition, room, board & fees of the state school. Cost to attend state school can be less than half the cost to attend a private.

alex_686
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Re: College savings plans - Roth vs. 529

Post by alex_686 » Wed Jul 11, 2018 9:50 pm

Bacchus01 wrote:
Wed Jul 11, 2018 9:36 pm
mhalley wrote:
Wed Jul 11, 2018 9:14 pm
I am not in favor of using retirement accounts for other purposes. There are many ways to pay for college, but only one to pay for retirement. If you don't like 529 plan restrictions, either set up an UTMA account or just invest in a taxable account.
What? There are just as many ways for retirement as there is college. I don’t understand your point.
I think Mhalley is confusing the tax advantages of a Roth account with the fact that it has the word "retirement" in it instead of looking what it actually does. Like the fact that I am confused as why so many people buy sports cars but don't race them on weekends. Or people buy off-road SUVs and never take them off-road. Words can blind us.

To the OP, I am one of those who favor Roth plan because they offer tax advantages for either retirement or other goals - like college savings. However, as you point out this flexibility does have a downside. Just make sure that you take care of you and your wife's retirement needs first before your children's college savings.

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lthenderson
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Re: College savings plans - Roth vs. 529

Post by lthenderson » Thu Jul 12, 2018 9:49 am

Answering this really depends on your unique situation and more details than you provided. One of the better articles that breaks down the pros and cons of a Roth vs. 529 is linked below.

https://www.thesimpledollar.com/529-vs- ... ge-savings

Quaestner
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Re: College savings plans - Roth vs. 529

Post by Quaestner » Thu Jul 12, 2018 12:36 pm

Without knowing much about divorce laws, your logic using 529's seems sound. We went with the 529 for college. Tax-free retirement growth is so limited, so the Roth is for us, not kids (unless we pass it on). The 529 also got us a modest state income tax deduction. Taking money out of the 529 for the kids hasn't been too cumbersome, and the ability to switch beneficiaries gives us flexibility (one kid went to school in state, the other out of state). If you only had money to do one or the other, and the fees were the same, and the state tax deduction minimal or none, then I could see going with a Roth. If you have money for both, I'd use the Roth for retirement and 529 for college.

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Re: College savings plans - Roth vs. 529

Post by Grt2bOutdoors » Fri Jul 13, 2018 9:53 am

HereToLearn wrote:
Wed Jul 11, 2018 9:41 pm
Grt2bOutdoors wrote:
Wed Jul 11, 2018 4:18 pm
In a divorce settlement, the judge could decree you are both liable for college costs - 529 plan or not. The judge probably will not decree retirement assets be used (Roth,401k) to pay for it.
I think judge's orders vary by state. In some states, the judge can only order a spouse to cover up to the in-state cos of tuition, room, board & fees of the state school. Cost to attend state school can be less than half the cost to attend a private.
In my state, costs to attend local state flagship is $26k per year. Divorce can be costly, lawyers are costly, therapists for children are costly (court mandated), vindictive spouses (hopefully not) can decimate ones liquidity. $52k doesn’t sound like a lot until you have to “dig” it up. Child support and alimony can be a real killer. I don’t speak from first hand experience, but from hearing my relatives describe what happened to them. No one ever plans on getting divorced.
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dsmil
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Re: College savings plans - Roth vs. 529

Post by dsmil » Fri Jul 13, 2018 10:00 am

If I saved enough to fill up two Roths with retirement contributions, I'd use the 529 for college. Until then, I'm using the Roths for college.

dziuniek
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Re: College savings plans - Roth vs. 529

Post by dziuniek » Fri Jul 13, 2018 10:04 am

In my state we get a deduction in state taxes for the 529 plan up to $10,000 (I think?), so it's an easier choice.

Different accounts make easier personal book-keeping, also. (this is just how my brain works).

47Percent
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Re: College savings plans - Roth vs. 529

Post by 47Percent » Fri Jul 13, 2018 10:46 am

The main difference I see is that you can shovel in a lot more money in 529 than ROTH. With ROTH you are either restricted to the yearly max of $5,500 or $6,500, or you have to resort to conversions from TIRA.

I personally consider the 529 an education endowment for your heirs. I have no concern that I may be over-funding it as my son, who is 12, can use any left over for his son's or daughter's education! Unlike ROTH there is no RMD for 529 (even for your heirs) and it can keep growing between generations.

I ike 529 because a) I like the idea of some money earmarked for education, and b) I plan to be taking advantage of AOTC tax credits which has a stricter definition of Qualified expenses; 529 money can be used for room and board.

alex_686
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Re: College savings plans - Roth vs. 529

Post by alex_686 » Fri Jul 13, 2018 11:56 am

dziuniek wrote:
Fri Jul 13, 2018 10:04 am
Different accounts make easier personal book-keeping, also. (this is just how my brain works).
It is not just how your brain works, it is how our brain works. This is called "mental accounting" and is considered a "cognitive bias". Rationally it is better to integrated all of your goals into a single portfolio but this requires a high cognitive load. Most people just take the path of least resistance.

I tend to push people towards a rational plan instead of a ad hoc plans, but I do recognize that it requires more discipline, requires a higher effort in crafting a IPS, and is more complex.

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Re: College savings plans - Roth vs. 529

Post by new2bogle » Fri Jul 13, 2018 12:53 pm

lthenderson wrote:
Thu Jul 12, 2018 9:49 am
Answering this really depends on your unique situation and more details than you provided. One of the better articles that breaks down the pros and cons of a Roth vs. 529 is linked below.

https://www.thesimpledollar.com/529-vs- ... ge-savings
Thanks for the link.

I put my kids' college money into a Roth IRA via the mega backdoor roth. This statement from the above link concerns me:
And for financial aid purposes, 100% of withdrawals from a Roth IRA and other retirement accounts count as income, even if the money isn’t taxed as income.
Is that true? I am not sure what my income will be when my kids are going to college (for example, if I reach FI as I am planning then I will be only working part time or on a contractor basis). So if my retirement accounts are well funded but my income is low, taking out extra money to pay for college could put my kid out of getting financial aid?

(Of course if my plan to be FI is not achieved or if I am still working on my day job then (hopefully) my income will be too high anyways for financial aid).

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Re: College savings plans - Roth vs. 529

Post by dziuniek » Fri Jul 13, 2018 6:22 pm

alex_686 wrote:
Fri Jul 13, 2018 11:56 am
dziuniek wrote:
Fri Jul 13, 2018 10:04 am
Different accounts make easier personal book-keeping, also. (this is just how my brain works).
It is not just how your brain works, it is how our brain works. This is called "mental accounting" and is considered a "cognitive bias". Rationally it is better to integrated all of your goals into a single portfolio but this requires a high cognitive load. Most people just take the path of least resistance.

I tend to push people towards a rational plan instead of a ad hoc plans, but I do recognize that it requires more discipline, requires a higher effort in crafting a IPS, and is more complex.
I don't disagree, although it makes me seem less-savy?

We are 70/30 across accounts (when combined) so we do look at the overall picture.

That being said, regardless of our financial situation, we chose to plow something into 529s for our 2 kiddos.

This probably stems from having north of 6 figures in combined student loan debt upon graduation.

Our (wife and I's) thought process was this in establishing 529s for the kiddos:

1. We hated our debt burden upon graduation.
2. Mental accounting helps us make sure that no matter what we do, our kiddos will have an easier path.
3. We should be ok regardless.

In relation to mental accounting per se, we're in complete agreement.

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Re: College savings plans - Roth vs. 529

Post by willthrill81 » Fri Jul 13, 2018 6:36 pm

We're working to max out as much of our tax-advantaged 'retirement' accounts as possible. Our plan is to cash flow our daughter's tuition if/when she decides she wants to attend college. Considering that I should reach financial independence at around that time, we should be able to just suspend our retirement savings in order to do so.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

mhalley
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Re: College savings plans - Roth vs. 529

Post by mhalley » Fri Jul 13, 2018 11:56 pm

This is what makes personal finance so interesting. There is no one answer that is 100% right every time without exception. (Well, maybe Dave’s baby steps) :beer
Here is a post by doughroller about not using Roth for anything but retirement. Many do use them for other things, and if they have thought about it, evaluated their reirement plan thoroughly and feel they will be fine using the Roth money elsewhere, good for them,
https://www.doughroller.net/retirement- ... hing-else/

SimonJester
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Re: College savings plans - Roth vs. 529

Post by SimonJester » Sat Jul 14, 2018 8:44 am

new2bogle wrote:
Fri Jul 13, 2018 12:53 pm
And for financial aid purposes, 100% of withdrawals from a Roth IRA and other retirement accounts count as income, even if the money isn’t taxed as income.
Is that true? I am not sure what my income will be when my kids are going to college (for example, if I reach FI as I am planning then I will be only working part time or on a contractor basis). So if my retirement accounts are well funded but my income is low, taking out extra money to pay for college could put my kid out of getting financial aid?
On the FAFSA: you must add back in Roth IRA distributions as income:

Q 94f: What were your parents’ total untaxed portions of IRA distributions?
f. Untaxed portions of IRA distributions from IRS Form 1040—lines (15a minus 15b) or 1040A—lines (11a minus 11b). Exclude rollovers. If negative, enter a zero here.

However: Distributions from such a 529 plan are not reported as income on the FAFSA.

Now the 529 account itself is reported as a parental asset on the FAFSA, which interestingly would shrink as you draw it down.
Your Roth IRA is not reported on the FAFSA...

Parental income is weighed heaver then assets.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

alex_686
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Re: College savings plans - Roth vs. 529

Post by alex_686 » Sun Jul 15, 2018 2:11 pm

SimonJester wrote:
Sat Jul 14, 2018 8:44 am
new2bogle wrote:
Fri Jul 13, 2018 12:53 pm
And for financial aid purposes, 100% of withdrawals from a Roth IRA and other retirement accounts count as income, even if the money isn’t taxed as income.
Is that true? I am not sure what my income will be when my kids are going to college (for example, if I reach FI as I am planning then I will be only working part time or on a contractor basis). So if my retirement accounts are well funded but my income is low, taking out extra money to pay for college could put my kid out of getting financial aid?
On the FAFSA: you must add back in Roth IRA distributions as income:

Q 94f: What were your parents’ total untaxed portions of IRA distributions?
f. Untaxed portions of IRA distributions from IRS Form 1040—lines (15a minus 15b) or 1040A—lines (11a minus 11b). Exclude rollovers. If negative, enter a zero here.

However: Distributions from such a 529 plan are not reported as income on the FAFSA.

Now the 529 account itself is reported as a parental asset on the FAFSA, which interestingly would shrink as you draw it down.
Your Roth IRA is not reported on the FAFSA...

Parental income is weighed heaver then assets.
Here is a plan that I am kicking around. I will open a home equity line of credit (HELOC). I will pay for my child's education via the HELOC. When they graduate I will then withdraw contributed fund from my ROTH to pay off the HELOC.

A couple of notes. Due to budget constraints we don't max out our retirement contributions. So we do need to think how we split our savings, retirement, education, pay-down mortgage. While we can get close, I doubt that we can fully fund all 3 of these goals, so we need to pick and chose.

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Re: College savings plans - Roth vs. 529

Post by SimonJester » Sun Jul 15, 2018 3:36 pm

alex_686 wrote:
Sun Jul 15, 2018 2:11 pm
Here is a plan that I am kicking around. I will open a home equity line of credit (HELOC). I will pay for my child's education via the HELOC. When they graduate I will then withdraw contributed fund from my ROTH to pay off the HELOC.
Your primary residence and its mortgage is not considered in the FAFSA calculations, however a HELOC could count against you see example below...
If you want to barrow money to pay for college, just go the parent plus loan route and pay that off with the Roth contribution.

There would be additional risk using the HELOC that you are now using you home as collateral for the college loans. Again they are going to be showing parent plus loans down your throat come college time.


Q. After we completed the Fafsa and the C.S.S. Profile we decided to secure a home equity line of credit to consolidate some consumer debt. Do we need to make revisions to these forms? Will having the H.E.L.O.C. work against us for financial aid? – Marie

A.
A home equity loan yields a cash balance in a bank account that counts as an asset on the Fafsa. A home equity line of credit (H.E.L.O.C.) does not yield a cash balance until the borrower draws upon the line of credit.

In neither case is the cash balance offset by the amount of debt. The net worth of any asset is calculated by subtracting the amount of debt secured by the asset from the current market value of the asset. A home equity loan or H.E.L.O.C. is secured by the home, not the cash. Since the family home is not a reportable asset on the Fafsa, the Fafsa does not consider any mortgage debt secured by the home.

If the family has used the home equity loan or H.E.L.O.C. to pay down other consumer debt, leaving no leftover cash, it will not affect the expected family contribution (E.F.C.). The remaining credit limit on the H.E.L.O.C. will likewise not affect the E.F.C., just as the credit limit on a credit card is not considered by the Fafsa.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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willthrill81
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Re: College savings plans - Roth vs. 529

Post by willthrill81 » Sun Jul 15, 2018 4:04 pm

Grt2bOutdoors wrote:
Fri Jul 13, 2018 9:53 am
No one ever plans on getting divorced.
Not to derail the thread, but people fail to plan on how to keep their marriage together every day. And a failure to plan...
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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Re: College savings plans - Roth vs. 529

Post by Grt2bOutdoors » Sun Jul 15, 2018 4:23 pm

alex_686 wrote:
Sun Jul 15, 2018 2:11 pm


Here is a plan that I am kicking around. I will open a home equity line of credit (HELOC). I will pay for my child's education via the HELOC. When they graduate I will then withdraw contributed fund from my ROTH to pay off the HELOC.
When are you planning to do this? I only offer this - in 2009, folks who had planned on using HELOCs were in for a rude awakening when the banks en masse either cut or outright closed HELOCs as the value of properties were either declining too fast and/or the houses could not be fairly appraised meaning the valuations were changing too fast to be accurate. HELOCs are a risky way to finance anything. I realize we are ten years past the crisis, but it's important to remember that things can change on a dime.
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Re: College savings plans - Roth vs. 529

Post by 47Percent » Sun Jul 15, 2018 7:24 pm

alex_686 wrote:
Sun Jul 15, 2018 2:11 pm

Here is a plan that I am kicking around. I will open a home equity line of credit (HELOC). I will pay for my child's education via the HELOC. When they graduate I will then withdraw contributed fund from my ROTH to pay off the HELOC.

A couple of notes. Due to budget constraints we don't max out our retirement contributions. So we do need to think how we split our savings, retirement, education, pay-down mortgage. While we can get close, I doubt that we can fully fund all 3 of these goals, so we need to pick and chose.
Seems like you are unnecessarily complicating where things could go wrong. (Tying up your house, having a tempting credit line available for something new that suddenly, absolutely, "makes sense", etc.)
Not sure what it buys you either.

The only semi-logic I can think of is you would have reached 59 1/2 by the time they finish college, so you can avoid the penalty.

If you are so sure that's what you are going to use the money for, why not put it in 529 to begin with.

Or, just save the money in an after tax acct. (It will have some FAFSA impact) for paying for their college. Depending on your relationship, you can even "negotiate" with your children and have that treated as a loan. If and when they pay it back, use it for your retirement. If your retirement is fully funded, you can gift it (back) to them at that time.

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Re: College savings plans - Roth vs. 529

Post by new2bogle » Mon Jul 16, 2018 11:58 am

SimonJester wrote:
Sun Jul 15, 2018 3:36 pm
alex_686 wrote:
Sun Jul 15, 2018 2:11 pm
Here is a plan that I am kicking around. I will open a home equity line of credit (HELOC). I will pay for my child's education via the HELOC. When they graduate I will then withdraw contributed fund from my ROTH to pay off the HELOC.
Your primary residence and its mortgage is not considered in the FAFSA calculations, however a HELOC could count against you see example below...
If you want to barrow money to pay for college, just go the parent plus loan route and pay that off with the Roth contribution.
This actually sounds like a great plan. I am still about 10-11 years away before the first one goes to college so who knows what will change in the next decade (free college for all??). When the time comes, I can assess the interest of the parent loan vs. reduced financial aid due to Roth distributions.

Thanks - now I will keep on contributing to the Roth IRA for college. Over the weekend I was considering opening a 529 but I don't think so anymore.

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Re: College savings plans - Roth vs. 529

Post by SimonJester » Mon Jul 16, 2018 12:40 pm

new2bogle wrote:
Mon Jul 16, 2018 11:58 am
Thanks - now I will keep on contributing to the Roth IRA for college. Over the weekend I was considering opening a 529 but I don't think so anymore.
Couple of big reasons you want to open a 529, if your state offers a tax cut, then I would use the 529 to get those tax breaks.

Also you need to consider time horizons for withdrawing the money. My oldest is starting college in a month, so his investments have been moved to a MUCH more conservative allocation. You will need to do the same in your Roth, otherwise you could be in a pickle should we suffer another downturn as you need to the Roth money.

And finally with all of this you should consider the other tax breaks you get for college education, such as the AOTC which requires you to pay some of the tuition bill outside of other tax sheltered monies...

My view is kids can barrow for college if they must, but you cannot barrow for retirement. So first you need to fully fund your Roth, plus put 15% or more towards your 401k. Then with leftover monies fund the 529. Thankfully my kids should be able to get through 4.5 years of college debt free.
"They who can give up essential liberty to obtain a little temporary safety, deserve neither liberty nor safety." - Benjamin Franklin

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Re: College savings plans - Roth vs. 529

Post by H-Town » Mon Jul 16, 2018 1:04 pm

bloom2708 wrote:
Wed Jul 11, 2018 3:28 pm
The general guide is to prioritize your retirement. Maxing pre-tax 401ks, 2 Roth IRAs, HSA. You can borrow for college but not for retirement.

If you have more funds to invest then taxable and 529 are good options. We designated 50% of college savings in a taxable (3 fund style) and 50% to a 529 (age based funds) for each of 3 kids.

I started them quite aggressive and dial them back as the kids get closer to college (oldest is in college). We should have enough for each, but can cash flow some expenses. I plan to use the 529s first and then taxable. If #2 and #2 get more scholarships, we can adjust on the fly. With the long horizons, the 529s grew pretty nicely. It will be good to have options and flexibility.

I would use a Roth with the intention of retirement, not college. For many it is the last money to be used, although it can be used if needed.
^ this. This is what I do. After maxing out all retirement accounts, I put in 529's and taxable accounts. 529 has a tax break and a good 15-18 years time horizon. I just make sure that I'm not overfunding the 529.

new2bogle
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Re: College savings plans - Roth vs. 529

Post by new2bogle » Mon Jul 16, 2018 1:39 pm

SimonJester wrote:
Mon Jul 16, 2018 12:40 pm
new2bogle wrote:
Mon Jul 16, 2018 11:58 am
Thanks - now I will keep on contributing to the Roth IRA for college. Over the weekend I was considering opening a 529 but I don't think so anymore.
Couple of big reasons you want to open a 529, if your state offers a tax cut, then I would use the 529 to get those tax breaks.

Also you need to consider time horizons for withdrawing the money. My oldest is starting college in a month, so his investments have been moved to a MUCH more conservative allocation. You will need to do the same in your Roth, otherwise you could be in a pickle should we suffer another downturn as you need to the Roth money.

And finally with all of this you should consider the other tax breaks you get for college education, such as the AOTC which requires you to pay some of the tuition bill outside of other tax sheltered monies...

My view is kids can barrow for college if they must, but you cannot barrow for retirement. So first you need to fully fund your Roth, plus put 15% or more towards your 401k. Then with leftover monies fund the 529. Thankfully my kids should be able to get through 4.5 years of college debt free.
Agreed that need to fund retirement first. I already max 401k and can't contribute to Roth IRA due to income limits. Roth IRA contributions are via a mega back door and putting in about $25k/year. Good point on there being a downturn and needing the money out - so will need to have a path for the monies that are coming out.

Part of college paying may also be just bankrolling through regular income. Not sure yet how FI my situation will be in 10 years (kids are expensive and costs are hard to know/fathom).

TX is no state income state, so no tax benefits for 529.

Thanks.

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willthrill81
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Re: College savings plans - Roth vs. 529

Post by willthrill81 » Mon Jul 16, 2018 2:51 pm

thangngo wrote:
Mon Jul 16, 2018 1:04 pm
bloom2708 wrote:
Wed Jul 11, 2018 3:28 pm
The general guide is to prioritize your retirement. Maxing pre-tax 401ks, 2 Roth IRAs, HSA. You can borrow for college but not for retirement.

If you have more funds to invest then taxable and 529 are good options. We designated 50% of college savings in a taxable (3 fund style) and 50% to a 529 (age based funds) for each of 3 kids.

I started them quite aggressive and dial them back as the kids get closer to college (oldest is in college). We should have enough for each, but can cash flow some expenses. I plan to use the 529s first and then taxable. If #2 and #2 get more scholarships, we can adjust on the fly. With the long horizons, the 529s grew pretty nicely. It will be good to have options and flexibility.

I would use a Roth with the intention of retirement, not college. For many it is the last money to be used, although it can be used if needed.
^ this. This is what I do. After maxing out all retirement accounts, I put in 529's and taxable accounts. 529 has a tax break and a good 15-18 years time horizon. I just make sure that I'm not overfunding the 529.
Once all other tax-advantaged accounts have been maxed out, then a 529 makes more sense.
“It's a dangerous business, Frodo, going out your door. You step onto the road, and if you don't keep your feet, there's no knowing where you might be swept off to.” J.R.R. Tolkien,The Lord of the Rings

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