Roth IRA - Save for education?

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looking4answers

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I read online that you can withdraw from a Roth IRA penalty free if the withdrawals are for education expenses for yourself or a valid dependent.
My question is: Why wouldnt I use a Roth IRA to save for my daughter's education? This way, if she ends up not needing the money, it's socked away for my retirement?
Am I missing something here? Is there any Roth IRA "fine print" that I'm not aware of?
 
Here's the problem. You can only put $5000 a year into the Roth. If you have $10,000 to put aside, you can't put more than $5000 in. Then if you use it in 10 years for your daughter's education, you can pretty much wipe out those contributions with one year's of expenses. (Once you dip into earnings, it's taxable.)

With the 529, you could in theory, make the same investments. The earnings could be tax free if used for education and room and board. (The headache is to make the earnings tax free for tuition means you can't use the same tuition dollar for an education credit.) And the amount you can put into the 529 is what is "reasonable" for education expenses. This is treated as a gift, but you can sock 5 years of gifts up front and not even trigger gift tax. (5 times $13,000 is $65,000 or a LOT more than $5000.)

Of course, once it's a gift, it's not your money anymore.
 
Here's the problem. You can only put $5000 a year into the Roth. If you have $10,000 to put aside, you can't put more than $5000 in. Then if you use it in 10 years for your daughter's education, you can pretty much wipe out those contributions with one year's of expenses. (Once you dip into earnings, it's taxable.)

With the 529, you could in theory, make the same investments. The earnings could be tax free if used for education and room and board. (The headache is to make the earnings tax free for tuition means you can't use the same tuition dollar for an education credit.) And the amount you can put into the 529 is what is "reasonable" for education expenses. This is treated as a gift, but you can sock 5 years of gifts up front and not even trigger gift tax. (5 times $13,000 is $65,000 or a LOT more than $5000.)

Of course, once it's a gift, it's not your money anymore.
 
No you are correct the penalties are waived if they person holding the account has a qualifying expense. However, you shold be aware of a 529 plan. This will let you contribute toward your daughter's college fund. I strongly recommend reading more about the 529 plan either online or with your financial advisor.

Remember, your IRA is for you, not for your daughter. Good luck.
 
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