Roth IRA

You can withdrawal funds, tax-free in certain circumstances, from a Roth IRA to pay qualified higher education expenses. While this may seem like a viable savings option, remember that you will be spending your retirement savings. Investment options include a wide range of securties.

Contributions

  • The lesser of $5,500 or 100% of earned income plus $1,000 for those age 50+
  • Income contribution limit $116,000 to $131,000 for single tax filers, $183,000 to $193,000 for married filers
  • No age limitation to contribute

Deductions

  • Not tax-deductible

Withdrawals

  • Account owner controls withdrawals
  • Proceeds must be used to cover expenses for college/postsecondary programs in the U.S. and qualifying foreign programs

Taxation

  • Withdrawals of contributions are tax-free
  • 10% penalty on earnings waived for qualified higher education expenses
  • Earnings taxed as ordinary income (unless certain other requirements are met)

Other

  • Withdrawals for education are treated as income for federal financial aid
  • Plan beneficiaries can be changed
  • Plan funds are not removed from the donor's estate

 

Source: Raymond James MFRM-01630518