Roth IRA vs. 529

ttparent
Sun, 30 Sep 2012 11:11:26 +0000

One advantage of Roth is that it would not be counted as an asset in most calculations for financial aid. 529 is not pre-tax investment but the gains are tax free if the distribution is used towards qualified expense like education. Otherwise, you can use it for anything else including retirement given that you need to pay 10% penalty and tax on the gains if the expense is not qualified. Conversely, if somehow you need to tap into the Roth money to pay for college, you can do so without penalty but you have to be careful and it is a lot less flexible. Moreover, the money taken out of Roth would be counted as income in the tax year that you take distribution and that would have big consequence on your income and financial aid potential for the following academic year.