Consider Using Roth IRA for College Savings

With college tuition increasing each year, utilizing a Roth IRA to cover some of those college costs may be be a good idea. Also, Roth IRA contributions will not affect the amount of financial aid your student receives because Roth IRA contributions are not tax deductible.

Roth IRA Distributions

Roth IRA contributions can be distributed at any time tax and penalty free and used for any purpose including paying for college. What is more, Roth IRA earnings can also be distributed penalty free (i.e., the 10% early distribution penalty does not apply even if you are under age 59 1/2 at time of the distribution); however, federal and state taxes still apply unless you are both age 59 1/2 or older and meet the 5 year holding requirement which would allow for tax free distribution for earnings.

What is an Educational Institution?

Any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education, which generally includes all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions.

Other Options

If you are self-employed and participate in a solo 401k plan, you can take a participant loan up to the applicable limit (50% of account balance or maximum amount of $50K.) from the solo 401k and use those funds for any purpose including to pay for higher education expenses.

 

About Mark Nolan

Each day I speak with energetic entrepreneurs looking to take the plunge into a new venture and small business owners eager to take control of their retirement savings. I am passionate about helping others find their financial independence. Having worked for over 18 years with some of the top retirement account custodian and insurance companies I have a deep and extensive knowledge of the complexities of self-directed 401ks and IRAs as well as retirement plan regulations. Learn more about Mark Nolan and My Solo 401k Financial >>

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