<p>When I started saving for my S for college I met with a financial advisor and he told me to put my money into a Roth IRA instead of the 529 because if my kid decided not to go to college I would lose the money in my 529 but would keep the money in my Roth IRA. Is anyone else doing this?</p>
<p>You need a different financial advisor. That is NOT true at all. The money stays in your 529 plan for as long as you want the money to stay in that plan. If your child doesn’t go to college, you can use the funds for taking classes, transfer the funds to another child or close relative, save the money and after age 65 use the money for retirement funds (subject to income tax). With the Roth, there are limits on how much you can take out, how you can take the funds, etc. as well.</p>
<p>Steve, sorry, I should have mentioned he did say I could transfer it to another child, etc. but he also told me that it could not be used for retirement, thank you for informing me on that. Is a 529 a pretax investment? Is there any advantage to a 529 over a Roth?</p>
<p>The advantage comes when you withdraw the money. The way the Roth money shows up on your taxes can impact your financial aid picture for the next year. 529 money is always counted as available dollars for college but at a lower rate. If you are a full pay family and won’t ever qualify for financial aid, there isn’t much difference as long as you have had the Roth long enough and you have deposited enough money into the account to pay for college. If you tap into the growth in the account, there is a penalty for taking those funds from the ROTH before age 65. It’s really a hard question to answer fully without seeing your full financial picture but generally the 529 plan is better if you are using the dollars for education.</p>
<p>Money in a 529 is your money. It is kept in your name for the benefit of the child, and you can change who the beneficiary is any time. You contribute after tax, but if you use it for college expenses, there is no tax on the earnings. If you do not use the money for college expenses, you pay tax on the earnings plus a 10% penalty, but no way do you lose it all. </p>
<p>So if you contributed $10000, it grew to $11000, and you took it out and used it for something else other than college, you would pay tax and penalty on the $1000 of earnings. I think that tax plus penalty could come to something like $400. You are still $600 ahead.</p>
<p>There is a lot of good info on 529 plans at this website:
[College</a> Savings 101 - Understanding and Planning for Your Child’s Future College Expenses.](<a href=“College Savings 101 - Understanding and Planning for Your Child's Future College Expenses”>College Savings 101 - Understanding and Planning for Your Child's Future College Expenses)</p>
<p>One advantage of Roth is that it would not be counted as an asset in most calculations for financial aid. 529 is not pre-tax investment but the gains are tax free if the distribution is used towards qualified expense like education. Otherwise, you can use it for anything else including retirement given that you need to pay 10% penalty and tax on the gains if the expense is not qualified. Conversely, if somehow you need to tap into the Roth money to pay for college, you can do so without penalty but you have to be careful and it is a lot less flexible. Moreover, the money taken out of Roth would be counted as income in the tax year that you take distribution and that would have big consequence on your income and financial aid potential for the following academic year.</p>
<p>keep your money in your matress!</p>
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What happen to your money if your house is burn down?</p>
<p>Better choice would be savings account or CD that’s insured by the FDIC</p>
<p>See [Many</a> 529 plans include savings accounts, CDs with tax benefits - USATODAY.com](<a href=“http://usatoday30.usatoday.com/money/perfi/columnist/block/2009-09-28-529-plans-advantages_n.htm?csp=34]Many”>Many 529 plans include savings accounts, CDs with tax benefits - USATODAY.com)
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<p>To compare savings options, see [Comparison</a> Chart of Savings Vehicles](<a href=“http://www.savingforcollege.com/compare_savings_options/]Comparison”>Compare College Savings Options - Saving for College)</p>
<p>The two should be considered separately. Your main consideration is whether you are saving enough for your retirement. Your child can get student loans, scholarships, grants, and a job to help pay for college. In retirement, you can get none of that. If you don’t have enough money for retirement, your child should attend a cheaper college.</p>