Retirement accounts have many benefits that 529 plans don’t have/ If you start closing traditional IRAs (which are pre-tax dollars) and moving them to a 529 plan, you’ll have to pay taxes and the penalty on the cash. You won’t pay taxes on the contributions to your Roth IRAA Roth IRA allows non-deductible, after-tax contributions of up to ,000 per year. As long as you hold the IRA for at least 5 years, the distributions are tax free. In addition, you are not required to make a minimum contribution each year, and there is no age limit for additional contributions. The Tax Relief Act of 1997 created the Roth IRA., but you will pay taxes and penalties on any earnings if you switch the funds to a 529 plan. On the other hand, you can withdraw contributions and earnings from your Roth IRA tax and penalty free if you use it to pay for college tuition, medical bills, or a down payment on a first home.
Can a savings plan work too well? If fun isn’t part of your financial plan, then your personal finance goals may lead to personal disaster. While it’s a great idea to committing to saving money, it’s important to leave room for the fun stuff, too.
As paying for college gets more and more expensive, parents try to find new ways to invest and save money – the best being a 529 plan. 529 plans are similar to 401(k)s, except instead of retirement, you invest and save money in a 529 plan for college. Each state has its own type of 529 plan to help parents invest and save money for college.
The cost of a college education has been rising faster than the rate of inflation. It will take a lot of diligent saving to stock up enough to pay for the entire cost of your children’s college educations. A 529 College Saving Plan is a great place to start saving for college.