Roth IRA vs. 529

LBowie
Sun, 30 Sep 2012 10:55:47 +0000

Money in a 529 is your money. It is kept in your name for the benefit of the child, and you can change who the beneficiary is any time. You contribute after tax, but if you use it for college expenses, there is no tax on the earnings. If you do not use the money for college expenses, you pay tax on the earnings plus a 10% penalty, but no way do you lose it all.

So if you contributed $10000, it grew to $11000, and you took it out and used it for something else other than college, you would pay tax and penalty on the $1000 of earnings. I think that tax plus penalty could come to something like $400. You are still $600 ahead.

There is a lot of good info on 529 plans at this website:
[College Savings 101 - Understanding and Planning for Your Child’s Future College Expenses.](College Savings 101 - Understanding and Planning for Your Child's Future College Expenses)