This week, Craig Siminski, of CMS Retirement Income Planning, shares some information that will be helpful for parents, grandparents, and others who are looking into various ways to save for a young person’s college education.
Roth IRAs were primarily intended as a tax-advantaged way to save for retirement, but for some parents (and students with earned income), a Roth IRA can double as a college savings tool. On the other hand, state-based 529 savings plans were designed specifically to help families set aside money for future education costs.
Roth IRAs and 529 plans are both funded with after-tax dollars, contributions accumulate tax deferred, and qualified distributions are tax-free. Still, there are a number of key distinctions to keep in mind.
Eligibility and Contribution Limits
In 2019, the maximum IRA contribution for someone under age 50 is $6,000 ($7,000 for those 50 and older). Roth IRA eligibility limits phase out for single filers with incomes between $122,000 and $137,000 ($193,000 to $203,000 for joint filers).
Anyone can contribute to a 529 plan; there are no restrictions based on income. And lifetime contribution limits are high, typically $300,000 and up (gift tax rules may apply). Each plan has …
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Craig Siminski is a CERTIFIED FINANCIAL PLANNER™ professional, with more than 21 years of experience. His goal is to provide families, business owners, and their employees with assistance in building their financial freedom.
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