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
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