A Roth IRA for kids’ college expenses?

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I am 47 years old and my two sons are 7 and 5. I have been looking closely at different options to save some money to help my kids with college tuition. I have looked to 529 plans, but am concerned about the penalties involved if they decide not to go to college.

As I mentioned previously, I have been considering a ROTH IRA for my own retirement and have realized that a ROTH IRA may be a great way for me to save for my kids’ college as well. ROTH IRAs do not offer a possible front end tax deduction like Traditional IRAs, but ROTH IRAs can provide tax free income if both of the following requirements are met: 

The five-year period

The ROTH IRA owner has one five-year period for determining ROTH qualified distributions. The five-year period begins on January 1 of the earliest year for which the individual made her first ROTH IRA contribution or conversion to any ROTH IRA.

One of the four qualified reasons

  • Age 59 ½
  • Disability
  • Death
  • First-time homebuyer expenses

So, if I start a ROTH IRA in the next 12 months I will have satisfied both ROTH IRA distribution requirements and qualify for tax free distributions! The year my oldest son would be ready to start college I will have had may ROTH IRA for 11 years (passing the 5 year requirement) and I will also turn 59 ½ that same year (passing one of the four qualified reasons). If my older son decides not to go to college I can leave those funds invested to help my younger son with college. If neither goes to college that will leave that much more for me in retirement!

Do you use your retirement investments for something other than retirement? Leave us a comment and let us know how you put your IRA, 401(k), or other retirement savings to work!

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