Saving for niece’s education: Roth vs 529 vs something else?
What type of account is best for college savings?
529 Accounts
529 Accounts
Most financial experts agree that 529 plans are one of the best ways to save for college. Most states, including North Carolina, have 529 plans. They’re tax-advantaged education savings accounts that are not subject to state or federal taxes.
What type of college fund is best?
A 529 savings plan, which gets its name from the tax code, is the go-to option for investing for college because of the tax benefits it offers.
Can you use a Roth IRA for education?
While they’re not specifically designed for college savings, Roth IRAs can be used to pay for a college education. Roth IRA accounts are funded with after-tax dollars and grow tax-free, and money can be withdrawn for educational purposes without a penalty — though you’ll still have to pay income taxes.
Why 529 is not a good idea?
It could hurt your child’s chances of getting financial aid
Any distributions from a 529 plan that’s owned by a third-party are counted as untaxed income, and they may hurt your child’s chances of qualifying for financial aid, including grants, work-study programs, and subsidized loans.
What is the best financial option to finance a child’s education?
Set up a 529 Plan
With the money invested, you can choose between stock, bond, mutual or money market funds, and even choose a portfolio based on the age of your child. It’s best to invest as early as possible.
Should I invest my child’s college fund?
With a 529 plan, your contributions grow tax free, so it’s especially beneficial if you start contributing early. Plus, withdrawals made later on for qualified education expenses (things like tuition and books) are also non-taxable.
How do I start a college fund for my niece?
If you’re really eager to start investing for your niece, there is a way to contribute to a 529 before the child is born. You can open an account now and make the child’s parents or other eligible relative the beneficiary. Then you can change the beneficiary to your niece after you get her Social Security number.
What is a good savings plan for a child?
Financial experts seem to universally agree that a 529 plan is the best way to save money for child college costs. The accounts come with tax benefits, and many plans feature low fees. There are two types of 529 plans.
What does Dave Ramsey say about 529 plans?
Dave warns against using a 529 Plan that would freeze your options or automatically change your investments based on the age of your child. Stay away from so-called “fixed” or “life phase” plans. You want to stay in control of the mutual funds at all times.
What is an alternative to 529?
Some 529 alternatives include using a custodial account, Roth IRA or Coverdell Education Savings Account.
What happens to my 529 if my child doesn’t go to college?
If your child doesn’t use all of their 529 funds, you’ll be able to use up to $10,000 to pay off their student loans. If one child doesn’t go to college at all, you can use their funds to pay up to $10,000 in student loans for each of their siblings.
When should you stop contributing to 529?
529 college savings plans do not have contribution deadlines. You may contribute to a 529 plan at any time throughout the year, and you do not have to stop making contributions once the beneficiary reaches a certain age.
Do I need a 529 for each child?
You don’t need a separate 529 account for each child, but it makes more sense than having a single account for multiple children. With separate accounts, you can match your investments to each time frame, and there’s no confusion about your intentions.
Can you convert a 529 to a Roth IRA?
The Internal Revenue Code does not permit a taxpayer to roll over a 529 college savings plan into a Roth IRA. Instead, one must take a nonqualified distribution from the 529 plan and invest the cash in a Roth IRA, subject to the applicable annual limits.
What are the disadvantages of 529 plan?
Here are five potential disadvantages of 529 plans that might affect your savings choice.
- There are significant upfront costs. …
- Your child’s need-based aid could be reduced. …
- There are penalties for noneducational withdrawals. …
- There are also penalties for ill-timed withdrawals. …
- You have less say over your investments.
Does a child Roth IRA affect financial aid?
It Won’t Impact Their College Financial Aid Eligibility
Retirement accounts aren’t reported as assets on the Free Application for Federal Student Aid (FAFSA), so your kid can keep stashing money in a Roth IRA without worrying about it affecting their financial aid.
Should I start a Roth IRA in college?
The Roth IRA is a wise option for college students. The money they are preserving for the future is still available if something unexpected happens while they are still in college. They can access the funds in the Roth IRA anytime.
Can you set up Roth IRA for child?
A Roth IRA for Kids provides all the benefits of a regular Roth IRA, but is geared toward children under the age of 18. Minors cannot generally open brokerage accounts in their own name until they are 18, so a Roth IRA for Kids requires an adult to serve as custodian.
Can a student with no income Open a Roth IRA?
You Need Earned Income to Fund a Roth IRA
Investment income does not qualify because it’s considered unearned income. The contribution limits on IRAs change periodically based on inflation. For , workers can contribute up to $6,000 a year to a Roth IRA ($7,000 for those 50 or older).