Roth IRAs for College Planning

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Roth IRAs for College Planning

Thanks to the Taxpayer Relief Act of 1997, you can draw on Roth IRAs for education expenses.

Here are some answers to questions about using Roth IRAs for education expenses:

• How much can I contribute to the plan? Check the IRS’ Website for contribution limits.
• What are the plan’s investment options? You can invest a Roth IRA in just about anything.
• What are the taxes? Withdrawals of contributions (not earnings, though) are tax-free. Contributions are subject to taxes.
• Who controls the money? The account is under your control. You decide how the money is spent, if at all.
• Can the money in the plan be used for anything other than education? If your child doesn’t attend college, you can use the Roth IRA to fund certain other goals.

Using the Roth IRA as a college-savings tool suffers from the same drawbacks as using a traditional IRA for college funding. And with a Roth IRA, you can only withdraw your contributions to the account without penalty, not the gains your investments have made.