Check my math, please - IRA vs. 529

DHMchicago
Fri, 16 Mar 2018 04:09:26 +0000

I breezed through the discussion, but because I just posted a tax credit post, I’ll offer my 2 cents, sorry if it is repetitive. You get a little extra gain from the 529 if it is tax deductible from income in your state. Otherwise it is a lot like comparing a Roth versus standard IRA, which is paying tax now versus later. I think the main issue is the tax rate now versus in the future when the IRA funds are withdrawn. MOST people will be in lower tax bracket when they retire, which tends to favor IRA. However, if you are drawing extra amounts from IRA to pay for college, that might push income to a higher tax bracket. I think a 529 is a lot like Roth, but we were not eligible for Roth. Although I am enjoying the benefits of 529, as a policy for the country overall I do not like them because they favor the rich. The more excess money out there for college leads eventually to price inflation and country-club colleges rather than broad availability for everybody.

The other factor is if you are in the income territory for need-based financial aid, IRA money is hidden, 529 money is counted as parental asset.