College Planning
Saving for College
In just the last decade, the real cost of a four-year college education has risen by an average of more than 50% at public colleges and universities and by 35% at private schools after adjusting for inflation.
Parents who are saving to help pay for their children’s college education have at least four investment tools to work with.
An IRA for Your Child
Children with earned income can contribute to an IRA of their own. For the 2007 tax year, they can contribute up to $4,000; this increases to $5,000 in 2008. With a traditional IRA, they will be taxed at their income tax rate when the money is withdrawn to pay for college, but current federal tax laws waive penalties on money used for college.
With a Roth IRA, they pay taxes when the contribution is made, but the money grows federally tax-free, and they can withdraw all the contributions (but not the earnings) tax- and penalty-free to pay for college.
A Roth IRA for You
Roth IRA investors can withdraw their contributions tax- and penalty-free to pay for college expenses. The earnings that remain in the account can continue to grow toward funding your retirement.
Note: The information presented here does not constitute tax advice. State tax regulations may differ from federal tax regulations. Always consult your personal tax advisor before making any tax-related investment decision.