Timothy Sumer

I had NO clue that distributions from Roth IRAs are used on your FAFSA and can affect your ability for need-based aid. But they do! Let me repeat that. ..Distributions from Roth IRAs are used in your FAFSA as a way to determine how much your Expected Family Contribution (EFC) is. Thus, if you have a Roth and thought you could pull from it, tax free, well you'd be right... BUT, that doesn't mean this is a good idea. Not if you think you can get need based aid. In fact, when I was researching the benefits of the Roth for my book, 21 Reasons You NEED A Roth IRA I was thinking the Roth would be a wonderful account to use for college funding. Well it CAN be but you've got to tread carefully here. The Fafsa form is about 2 years behind. Thus, here it is 2018 and we have to show our 2016 tax forms to the colleges my daughter is thinking of attending. So, what we did in 2016 is what matters, even though it's not 2018. So, if you took distributions fro...

September is College Savings month and so I wanted to highlight a couple of options available for saving for college: the 529 plan and the Roth IRA account. Both provide similar tax benefits towards college savings: after-tax contributions, tax-free growth and (potentially) tax-free withdrawals. The devil is in the details, so let’s take a look at each account. The 529 offers the most flexibility in terms of savings, but the least in terms of usage. You can contribute quite large amount each year ($15k per year) and you can also pre-fund it with 5 years worth of contributions all at once. You can withdraw the money at any time for qualified education expenses, including $10k / year for K-12. The Roth IRA on the other hand has very tight limits on contributions per year ($6k in 2019) and also income limits: if you are a high-earner, you are phased out from contributing directly to a Roth IRA. However, once you reach age 59 ½ and have had the account for 5 years, you can with...