Check my math, please - IRA vs. 529

billcsho
Fri, 16 Mar 2018 01:09:42 +0000

I have heard a lot of people warning about using the retirement fund for children’s college education expenses. I am not sure if everyone have already maximize their IRA contribution each year. One way or the other, it is still your money. If one need to use the current saving to fund the education (in 529 or direct payment), one would have less money left for IRA contribution anyway. So the question is where to put the money that you will use for your kid’s education. Indeed, I have stopped funding the 529 accounts since I found out my D received a lot of gift aids from her need met school when she started college and the 529 balance would hurt the financial aids. It took us 4 year to deplete my D’s 529 even we had less than 1 year of CoA in it originally. For the one time state tax deductible saving I received by putting the money in the 529, I lost it in the first year’s financial aid calculation and even more in the subsequent years. For my friends with young kids that do not have Roth or regular IRA but other retirement savings, I told them to consider setting up Roth IRA and use it as an education fund instead of 529. It is a lot more flexible and it is protected asset for FAFSA. There is no easy answer which way is better as the financial situation, the income level, the retirement saving options, the state tax rate, and the school’s financial aid calculation are different. One would have to look at their own situation, and even that, the benefit is unpredictable as no one knows which school the kid ends up going.