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Investing in a Roth as Part of College Education Planning

| December 08, 2014

A Roth IRA can be a smart way to save for a child’s education or fund continuing education classes. However, the key is to maintain the right amount of risk depending on when the money will be used for college expenses. Education Planning doesn’t have to be complicated, especially with the guidance of a respected financial adviser.

According to a report by, a reasonable college budget can range from $22,826 a year for in-state to $44,750 a year for private college. When it comes to thinking of the Roth as part of college financial planning, consider the benefits of a Roth over other college investment and saving vehicles.

Eliminating tax consequences

As long as a person withdraws their contributions to a Roth IRA as opposed to the interest earned, they do not have to pay taxes. It doesn’t matter how the money is spent. Money contributed to a Roth IRA, however, has to be earned income.

Funding short and long-term goals

Parents can help their children get a head-start on retirement by encouraging them to open a Roth IRA as soon as they get their first jobs. The interest and dividends earned may stay in the account for retirement, while the contributions may be withdrawn for college. Depending on the individual situation, it may be better to use a Roth IRA as a backup college fund as opposed to taking out student loans.

Education Planning should start as soon as your child is born. Some experts believe the cost of tuition may go down in the future if the so-called “student loan bubble” bursts. The cost of college is rising faster than even health care costs.

Using a Roth IRA for Education Planning gives parents and children flexibility for the future. A financial adviser can help you decide how to make smart investments for your Roth IRA accounts.