The same is true if you make withdrawals before your account has been open for five years, even if you are old enough. Taxes on early withdrawals: If you withdraw earnings for college expenses before age 59 1/2, you will have to pay income tax on the withdrawal. Affects retirement savings: If you use money set aside for retirement to pay for college expenses instead, you would no longer have that money to fund your retirement.No state tax deduction: Unlike some state 529 plans, there's no state income tax deduction for contributing to a Roth IRA.Roth IRAs are still low-impact assets for financial aid purposes the total asset value is not reported on FAFSA. This can reduce your child's eligibility for need-based financial aid. Reduces financial aid: Roth IRA distributions to pay for college expenses count as untaxed income on next year's FAFSA.Lower contribution limits: Roth IRAs have lower contribution limits than other college savings accounts. You can invest up to $6,000 per year or $7,000 if you are over age 50.Single filers must make less than $144,000 to contribute to a Roth IRA in 2022. Income limitations: Roth IRAs have income limitations that make married couples filing joint returns ineligible to contribute directly to these accounts if they earn more than a certain amount.Penalty-free withdrawals: You could withdraw your Roth IRA contributions and earnings early for qualified education expenses without paying the 10% early withdrawal penalty.This is true as long as your account has been open for at least five years. After age 59 1/2, earnings can be withdrawn tax-free. That means these can be taken out at any time without tax or penalty. The contributed funds grow in the account tax deferred and the money comes out for education expenses tax free. Tax-free withdrawals: Roth IRA contributions are made with after-tax dollars.This can give you more opportunities for more aggressive investments that can grow your money quickly. Roth IRAs allow you to choose from many types of investments: stocks, bonds, mutual funds, ETFs, REITs, CDs, and more. More investment options: The majority of 529 college savings plans offer a limited amount of investment options to choose from.When you withdraw it, you do not have to pay any more in taxes. Tax-free growth: You pay tax on money put into an IRA when you earn that income.Any money that you don't need for college can still be used for retirement. That means they can be used to help pay for multiple students' expenses, not only one. Flexibility: Roth IRAs don't have a single designated beneficiary.
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