The Roth allows you to take out your contributions at any time, tax- and penalty-free, so you could tap that money for college expenses.
Here’s how it works: A husband and wife can each contribute a certain amount—in 2010, up to $5,000 annually ($6,000 if you’re 50 or older). Say you and your spouse start out on this path with a newborn. You would contribute $180,000 over 18 years. That sum could then be tapped for college bills or left to continue growing for retirement. The earnings on those contributions (another $225,000 in this example assuming the accounts grow at 8% per year) could be withdrawn penalty-free if you use them to pay college bills (but tax would still be due if you are under age 59½ at the time of the withdrawal). Or earnings could continue to grow inside the account and be withdrawn tax-free when you retire.
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Note that there are income limits for contributing to Roths. For instance, in 2010, the ability to contribute begins to phase out at modified adjusted gross incomes of $167,000 for married couples filing jointly and disappears entirely at $177,000. The income phaseout range for singles is $105,000 to $120,000.
Retirement assets are not included in the federal financial aid formula.
Retirement assets are not included in the federal financial aid formula.
