Paying for College

Saving for College 101: Roth IRAs

The Roth retirement savings-account can serve as a fall-back fund for paying college bills.

Saving for your children's college education is one of the most important financial tasks you will ever undertake. Luckily, you have plenty of savings options, most of them with tax advantages designed to encourage you to invest in your children's future.

Consider a Roth IRA: 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 2015, up to $5,500 annually ($6,500 if you’re 50 or older). Say you and your spouse start out on this path with a newborn. (But the account would be in the parents' names, assuming the newborn doesn't work—you need to have earned income in order to open a Roth.) You would contribute $198,000 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earnings on those contributions (another $231,594 in this example assuming the accounts grow at 8% per year) could be withdrawn penalty-free if you use them to pay college bills (but tax would still be due if you are under age 59½ at the time of the withdrawal). Or earnings could continue to grow inside the account and be withdrawn tax-free when you retire.

Note that there are income limits for contributing to Roths. In 2015, the ability to contribute begins to phase out at adjusted gross incomes of $183,000 for married couples filing jointly and disappears entirely at $193,000. The income phaseout range for singles is $116,000 to $131,000.

Retirement assets are not included in the federal financial aid formula.

Most Popular

Your Guide to Roth Conversions
Special Report
Tax Breaks

Your Guide to Roth Conversions

A Kiplinger Special Report
February 25, 2021
The 12 Best Tech Stocks to Buy for 2022
tech stocks

The 12 Best Tech Stocks to Buy for 2022

The best tech-sector picks for the year to come include plays on some of the most exciting emergent technologies, as well as several old-guard mega-ca…
January 3, 2022
Can AI Beat the Market? 10 Stocks to Watch
stocks

Can AI Beat the Market? 10 Stocks to Watch

An artificial intelligence (AI) system identifying high-potential equities has been sharp in the past. Here are its 10 top stocks to watch over the ne…
January 14, 2022

Recommended

Biden Extends Suspension of Student Loan Payments
loans

Biden Extends Suspension of Student Loan Payments

The president gave borrowers another 90 days until May 1 before they have to start paying back their student loans.
December 22, 2021
Good Marriage, Bad Credit
Starting a Family

Good Marriage, Bad Credit

Credit reports aren’t merged for married couples, but their individual records affect joint loans.
December 21, 2021
Last-minute Gifts That Save Money All Year
spending

Last-minute Gifts That Save Money All Year

Supply chain issues may not have motivated you to buy early and now you’re panicked. No need to worry; we’ve got you covered.
December 9, 2021
How 10 Types of Retirement Income Get Taxed
retirement

How 10 Types of Retirement Income Get Taxed

When you're planning for retirement, it's fun to contemplate all the travel and rounds of golf ahead of you, but don't forget about taxes.
December 3, 2021