529 Plan College Fund
October 23rd, 2006
Question: Loans versus pulling money out of a Roth IRA or 529 for College?
I have two children, 9 and 11, whom I am planning to put through college. I am debating whether to put money into a 529 investment fund or putting it into a Roth IRA and pulling out the money needed to pay for their college when the time comes.
What I would rather do is pay for most of their college expenses by having them get student loans. I would be able to keep my money in a compounding interest account and make money against the interest rate of the student loan. I could then pay their loans off over five years after they graduate. This would not only net me more interest earned, but would also establish their credit for when they need to acquire more serious loans such as a new car loan or mortgage.
One of the reasons that I am leary of putting money into 529 (which I know would work better than a Roth IRA) is that they will tally that in when putting together a student loan package. As far as I know, retirement accounts cannot be touched.
Answer: The thing is that the tax laws could change in 10 years when your oldest graduates from college in regards to the tax deductions. Also, with the loan interest rate trends going up with a strong chance of more interest rate hikes, odds are depending on the investment that it might not match the loan interest rate. The best thing is to consult an accountant before you make your final decision. However, it is an idea also to encourage your kids to keep their grades up because it will lead to possible merrit based help from the college and the state in some cases. Good luck!
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Tags: 529, 529 plan college fund, college, education, finance, investing