Prepaid Tuition vs. Educ Roth

[Guest Webster]

Trying to evaluate advantages to establishing one or the other. Anybody seen an article or have some info. to share?

Thx,

Webster

[Guest ERead]

I think the biggest factor would be time until the individual goes in. Some Prepaid Tuition programs will only cover a certain $ amount in the future, which may or may not be enough to cover the tuition. The educational IRA from the way I understand it, can be used for any educational expense as well as tuition. Check that out to be sure, but I would even consider doing both - the tuition plan for the school expense, and then set up the Educ. IRA to cover books, and/or housing.

I'm not an IRA pro by any means, so definetly check things out with a CPA, but I think you can do both.

[Guest emba129]

I suggest you look at a "529 plan" for tax deferred college education savings.

Take a look at Fidelity's Unique plan, sponsored through the state of New Hampsire

[Guest Albert Lin]

If you email me your address/fax at ayl@mcdonaldlaw.com, I can mail you a hard copy of a Houston Chronicle article that neatly sums up your question. From what I recall, a main disadvantage of the prepaid tuition plan is that given the current market, a person can nearly always earn more just by investing monies on his/her own. This ties into what ERead states; that is, if your child is an infant, you've got nearly 18 years of growth potential in stocks, bonds, etc.

I also understand that the Educational IRA may prevent you from receiving other educational benefits such as the Hope Credit.

[Guest John R Grossmann]

One problem with the education Roth is that you just can't salt away enough $$. For example, if you start at birth with the max $ you may end up covering the cost of 1 or 1.5 years of college.

The edu-Roth, Fidelity plan, and most state tuition prepays all have drawbacks and limitations. You may want to keep things simple and directly buy stocks (growth with low or no dividend) or mutual funds (tax managed or index funds) which will appreciate but have little or no tax impact until you choose to sell them to pay college bills. You can hold these assets in the childs name and get very favorable tax treatment after the child is 14 ... long term gains at their tax rate. Fairly simple, no limitations on the amounts, but your kid could supposedly use the money to buy a car.