Roth IRA versus Mutual Fund for College Exp.

[Guest jbangs]

Is there any downside to taking an earlier withdrawal from a roth IRA to pay for my kids education in 15 years. It seems that this would be a better vehicle than a mutual fund. It seems that you get taxed the same way, and If I do not need all the money for education, it keeps earning tax free until we retire.

Thanks

Joe

[John G]

Some downsides: (1) Roth rules are very likely to change over the next 15 years and how potential changes might effect your plans is uncertain. For example, you might be less eager to tap this source if you no longer qualified for contributions. (2) Dollar amount is currently limited to $2K per worker which might not be enough for a college savings plan (if you child was perhaps 14 you might want to save more, or if you were thinking of private schools)

Money in retirement accounts is not counted against scholarships in the same way as assets in the childs name, or non-retirement assets or non-home equity assets of the parents. Those rules will not doubt change many times over a 15 year period.

Generally speaking, you don't want to take out early withdrawals from an excellant shelter... the key point of a tax shelter is to "shelter" for a maximum amount of time. But by the time those college tuition bills come due, you may find other alternatives.