Benefits of a Roth IRA
- Roth IRAs are NOT included as an asset on the FAFSA (Free Application for Student Aid) form. Most other assets, including the amount in 529 plans, are included when calculating your EFC (expected financial contribution).
- Roth IRAs are more flexible. You can earmark as much or little as you want for higher education expenses, but those funds DON’T NEED to be used for qualifying education expenses. With a 529 plan, if you don’t use those funds for higher education, you will owe income taxes on the gains and the 10% penalty on distributions.
- Roth IRAs may provide the same tax-free treatment for distributions. If you are over age 591/2at the time you take distributions from your Roth IRA and you’ve had any Roth IRA for five years or longer, then anything you take out of your Roth IRA will be tax and penalty free. Even if you aren’t age 591/2at the time education-related expenses must be paid, you can still utilize Roth IRA contributions tax and penalty free.
Benefits of a 529 Plan
- 529 plans benefit from special tax breaks. As long as 529plan distributions are used to pay qualified education expenses, distributions are 100% tax free (in some states, you may also be entitled to a state income tax deduction). Note that with the 2018 changes to the tax law, 529 distributions can now also be used for private K-12 educational expenses.
- A 529 plan comes without income restrictions on who can contribute (unlike a Roth IRA’s earned income requirement). There are no federal contribution dollar limits and while individual state limits vary, those limits are much higher than the tax-year Roth IRA contribution limits.
- Unused funds in a 529 plan can be rolled over to a Roth IRA for the beneficiary of the 529 plan. Restrictions do apply. You are limited to $35,000 total. Other restrictions include contributions being limited to the annual Roth IRA contribution limit and taxable compensation being required.
You’ve probably heard the saying, “There’s no such thing as a bad question.” But in retirement planning, the way you frame your question often determines the quality of your answer. In this episode, we’ll share some common retirement questions, and how a simple reframing might lead to a more useful answer.
It is important for you to take an active role in your retirement planning. Life changes and events happen that require you to update your tax and estate plans. Use the information below to see how your planning might be affected. As you can see, many items require you to take action now.
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A huge thank you to everyone who joined us! We’re so grateful for our amazing clients and the joy you bring to every gathering.
