Wednesday, August 13, 2014
Many people today are concerned bout retirement and college funding. One approach that can ease the burden for both is to contribute to a Roth IRA. This is a powerful tool to double as a retirement and college funding account.
If you started funding the Roth when your child was born and you contributed $5,500 each year for 18 years, your total contributions would equal $99,000. Consequently, if there is a net 8% return, your Roth would have grown to $205,976.34. Since you have already paid tax on the $99,000, you can withdraw it tax free and free of any penalty, using it to pay for college tuition. The remaining balance can continue to accumulate tax-free until you reach retirement.
Tax-free withdrawals of your contributions from the Roth IRA are not limited to education. You could make a down payment on a home with the $99,000 instead.
See Frank Armstrong III, Use Your Roth IRA to Save For Both Retirement and College, Forbes, Aug. 11, 2014.