Sunday Morning Quick Hits # 6: Roth IRAs as a College Savings Strategy

March 20, 2016

 

College savings strategies are a reality in my household. My youngest is a sophomore in high school and my oldest is already in college. He is a freshman at the University of Illinois. If you read last week's Blog, that should not surprise you because the brainwashing started early ... he had to listen to me sing to him the Illini war chat while he was still in the womb. 

 

Clients that work with Brian and me know that we are fans of 529 college savings plans, especially Michigan's (MESP) plan administered by TIAA-CREF. We advise clients to stay away from many other state sponsored plans that are broker-sold given higher costs and commissions that impede long term growth and performance. In any event, 529 plans should be the focal point of any saving for college strategy. 

 

But many parents that are saving for their kid’s college are unaware the role a Roth IRA can play. It can have a double-duty purpose (i.e., retirement and college savings).  Let me explain. 

 

It’s possible for parents to save for both retirement and future college costs by contributing to Roth IRAs.  If your retirement needs are more urgent than paying for college costs, the Roth IRA will serve as a welcome source of tax-free funds, once your reach age 59 ½. But if you are ahead of schedule in saving for retirement when your kids go to college, the contribution portion of the Roth IRA accounts can be withdrawn with no taxes or penalties whatsoever at any time, for any reason—including paying for higher education expenses.

 

What's more, Roth IRAs are a retirement asset of the parents that are not included in applications for financial aid.  However, keep in mind that if you apply for need-based financial aid in the year after taking these withdrawals from the Roth IRA, the distributions may count as “untaxed income” in the financial aid formula, and may therefore reduce the aid awarded.

Please reload

Recent Posts

February 26, 2019

February 9, 2018

Please reload

Search By Tags
Please reload

  • Facebook Clean
  • Twitter Clean
  • LinkedIn Clean

TruNorth Capital Management, LLC (TruNorth) is an investment advisor registered in, and regulated by, the States of Michigan and Illinois. All clients and potential clients have access to important information about our business methods, fees, professional qualifications and all other pertinent business information. By using this website, you accept our Terms of Use and Privacy Policy. Past performance is no guarantee of future results. Any historical returns, expected returns, or probability projections may not reflect actual future performance. All securities involve risk and may result in loss.

Regarding the interaction TruNorth or its representatives may have with clients and/or potential clients in ERISA-covered plans, including SEPs, SIMPLEs and non-ERISA retirement plans that are subject to Section 4975 of the IRS Code, including IRAs, Keogh plans and Solo 401(k)s (collectively "retirement plans"), TruNorth may provide non-discretionary investment advice to a specific investor, recommending or suggesting the acquisition or disposing of securities or other investment property in a retirement plan and/or recommending a rollover from a retirement plan to another. During the course of this interaction, TruNorth meets their requirements of a "level-fee fiduciary" and adheres to the Impartial Conduct Standards that require TruNorth to a) provide advice that is in the client's best interest, b) receive only reasonable compensation for its advice and; c) not make materially misleading statements. 

© 2017 TruNorth Capital Management, LLC