Dreaming of your child’s future?

Do you want them to have the education you could never afford for yourself? Do you want them to go through college without working three jobs to pay their way? Do you want them to be able to graduate college and not be weighed down with manageable student-loan debt?

I dream of my children to attend schools that will set them up on a path of a successful career.  Just like retirement planning, it’s easier to plan ahead than do scramble when the big day arrives.

Roth IRA’s are a flexible option

One of my favorites ways to save for your kiddo’s future education is using a Roth IRA. The Roth IRA would be in their name. They would be the owner. But don’t let that scare you. There are plenty of regulations protecting the investment for you kids.

You control their Roth IRA until they turn 18. After they turn 18, the reigns are headed to your child to do with as they please. However, they only have a few options and running off to Jamaica is not one of them.

Tax Free Money

Although you nor your child cannot deduct any contributions made to the Roth IRA on your taxes, the money will grow tax free. They can take money out of the account in order to pay for tuition, fees, and room and board without any penalty.  

Flexibility

What’s nice about the Roth IRA, is its flexibility. Your child can still use the account if they don’t end up going to school, or they get a scholarship and don’t need all the money for college.  

It’s a retirement account, so that can keep the money safe, growing for their future. They can also use it for a down payment on a house on a first-time home purchase up to $10,000.

There are many other benefits to a Roth IRA. It gives you peace of mind knowing your children have smart financial options to use the Roth IRA. Talk with your financial advisor to see if it would be the right fit for you.

Other options:

The Roth IRA is not a good fit for everyone. If you never want to hand control over to your child when they turn 18, then it is not for you. If you want your IRA contribution to be tax deductible, it is not for you.

Here are some other investment vehicles that can be used to fund your child’s education:

  • Coverdell Education Savings Account
  • Education Savings Bond Program
  • Traditional IRA

Talk with your financial advisor to determine which route would be best for you.

Goodies to watch out for when your child attends college

American Opportunity Tax Credit: for the first 4 years of an undergraduate degree. This credit gives you up to $2500 back in your pocket per qualifying child attending college. All you need is the letter you receive through the mail during tax season that confirms how much you paid in tuition for the year.

Lifetime Learning Credit: This one is a beauty because there is no time limit on it. You can be in graduate school, or attending a class to further your skills in your career. You can reduce your taxes by up to $2000 with this credit. All you need is the letter you receive in the mail during tax season that confirms how much you paid in tuition for the year.

Put your own oxygen mask on first

Your retirement funding should take priority over your children’s education funding. The cost of an underfunded retirement can be more devastating than student-loan debt. So, ensure your personal financial security first, much like putting on your own oxygen in an airplane before helping your child put on theirs.