One of the better videos I have seen on IRA vs. 529 including ones from celebrity financial planners! Great points on flexibility and you even got the % that will be impacted under parental assets on the FAFSA. One point you missed 99% of financial planners do- is when you spend down the 529, how does that amount impact financial aid for the student the NEXT year? THIS is where most planners get it wrong and this can really make your college funding plan into a 25-year nightmare!
@@boomboomreddy FAFSA Q, 44i (the following year) if the custodian was NOT your "parent," example: Non-custodial parent or grandparent or other then technically it gets reported under the students "untaxed income." See page 9 notes of FAFSA.
Hello! We are thinking to open an education savings account for our daughter, so far we have seen 3 options, ESA, 529 and IRA two of them are for education only and one is for retirement that can be used for education as well, the question I have is if we can move the money to another country, we are from Mexico (our daughter was born in the US) but we may move in the future, for that reason we are not sure if our daughter will study in the US, Mexico, Europe or somewhere else, so, before we open any account we want to make sure the money can be moved if is necessary. Thanks.
Great video thank you! Would the Roth IRA be under the parents name? So the Roth IRA would serve as the parents retirement as well as their child’s educational purposes?
Can you roll your 529 contributions over to a Roth IRA? My state does a lot of matching and provides a $500 grant for an initial contribution so there’s a lot of extra money to be captured but it’d be nice to be able to help the kids out with their wedding or a down payment on a house if they decide not to go to college or don’t use all of the funds.
Yes it is true. If your kid get merit scholarship, by that time if your kid had a 529 plan. Then they say use your 529 funds first. After runout your 529 funds, if require more funds help. We help you they will say.
if my boy decided to go to another university outside Florida, then what happens? how can I use the money at this point? in this case which plan is better the 529 saving or just the prepaid plan or NY 529 ? thank you
Great video and thank you. One question I have. Lets say my son chooses to go to college. I have a roth IRA and I want to pull out $10k to help him with his education expenses. I’m 45 lets say, if I pull the $10k to help him will I get a penalty for doing that? Since Im not at least 59 and a half yet.
If you have put 10k into it, you can pull 10k out of it without penalty. You will only get 10% penalty if you start withdrawing the earnings and gains.
You can pull the contributions out anytime for any reason. The gains can also come out for education but you’ll have taxes, not penalties before age 59.5 as long as they are used for qualified education expense.
Hi, I have a question! You say that using a Roth IRA is a good choice because of its tax advantages. However, when I have a normal investment account, my profits will only be taxed at 15%. A Roth IRA means my profits will be taxed at ordinary income levels, which is often 22% or higher, not to mention state taxes. For that reason, doesn't it make more sense to use a normal investment account?
Poojan Thakrar yes, before age 59.5 you can take it out for a first home purchase or education expenses and avoid the 10% early withdrawal. BUT it almost never makes sense to do that. And the principal has no taxes since it was already taxed. The real value in the Roth is realized over time. So using the money for a home or education usually defeats the benefit. Think of it this way, “there is no such thing as a good short term and long term investment.” Even if that Roth IRA was tax free for the home purchase or educational expenses, I still wouldn’t do it. I would rather work nights and weekends than tap the Roth IRA.
@@TravisSickle Thank you very much for your reply! It means a lot when creators are willing to take the time and effort to talk to fans. However, in my case, I am looking to go back to school in about 2-4 years and want to know how to save my marginal dollar for grad school. Because of that, I was looking into the benefits of a Roth IRA for college expenses. However, won't I incur a higher tax bill if I choose a Roth IRA over a normal investment account? My marginal tax rate is 22% but capital gains is 15%.
A lil late but if i wanted to open an account for my son to use for either college or trade school or whatever once 18yrs old and not have it affect his financial aid benefits if school is his choice, should the account or accounts be in my name and just pull out the initial investments sum and keep the capital gains in the account for possible further gains?
No, you can't put it in your name and use it for another beneficiary. You can roll over money once a year but I don't think that's what you're trying to do. There is little benefit to saving it into either and using it immediately.
Not necessarily. Withdrawals from the Roth IRA will affect financial aid. Also, in the grand scheme of your financial life, you should be maxing out the Roth IRA for your retirement and wealth building. Also, you can roll part of the 529 plan into your child's Roth if it's not used. There is no one BEST way for everyone but likely it's this way.
Thanks so much for the reply ! Can 529 be used for education in Europe ? Would it be good then to have both 529 and ROTH IRA ? in case I can save more than the max of Roth IRA? Thanks
I have a private language institute and last week a family came and said they cannot take our class unless we will take the 529plan. The plan is for them not us, isn't?
I would do a 529 for my kid asap, then a Roth for the kid when they generate income during teenager yr from part time job. This way you don't have to tap into your own Roth acct. You would loose the power of compound interest if you tap into your Roth acct. It's ok to tap into the kids Roth if your really need to, they still have their whole life ahead to contribute.
Nope. Contributions anytime. There are a couple of 5 year rules. First home purchase, over 59.5 but didn’t have a Roth IRA for 5 years, Roth conversions…
Max out Roth ira first. Student can borrow for college but you can't borrow for retirement. And if you really wanted to help your kid, you can withdraw contributions (what you put in) from Roth tax and penalty free, not the earnings prior to 59 1/2, and use that to help your kid.
@@TravisSickle Thank you! I told my uncle, who is a dentist and owns his own dental business/office that he could employ/add his kids to payroll for things like administrative work or shredding paper, or even as equity owners so they can have earned income and thus qualify for a roth ira young. He said they have to have $0 income to qualify for financial aid, but like you said, that's not true. He also said he and his wife opened a ROTH IRA 20 years ago and put in $2k, but it has only grown to $2,500 in 20 years!! I asked him if they actually invested in something or if it is in some low interest money market collecting dust. Perhaps you can do a video showing people how or what they could use their ROTH IRA to invest in so that they don't think they just open an IRA and put money in and it will grow without investing in anything. Thank you!
That’s a good point. A Roth IRA is just a shell and the investments can be anything. Would make a good video. Too bad for the poor rate of return over 20 years. Sometimes people take money out and forget they did and then think that’s their rate of return.
I was wondering if an UTMA account would be better for my 10 year old son. I have a Florida pre-paid tuition plan. And I have not open one for my son yet?
i dont understand. Roth IRA for your child or for yourself? you should be clear from the beginning . and if for the child, how the hell can a child put money into a roth ira without earned income? and if for yourself, why the hell would a financial planner tell you to use a Roth IRA to fund your child's education instead of using the money for retirement? sounds hacky. again.. i can't understand this video because there is no clarity in what you are saying.
It’s a rule that you can use it for college. You can open a Roth IRA at any age and fund it with earned income. Kids jobs or if they work for you then you can avoid self employment and federal tax in certain situations.
Thank you, this is the best comparison video I've watched for these products.
One of the better videos I have seen on IRA vs. 529 including ones from celebrity financial planners! Great points on flexibility and you even got the % that will be impacted under parental assets on the FAFSA. One point you missed 99% of financial planners do- is when you spend down the 529, how does that amount impact financial aid for the student the NEXT year? THIS is where most planners get it wrong and this can really make your college funding plan into a 25-year nightmare!
What type of a nightmare? Can you please help elaborate ... how does a payment from 529 impact the students ability to secure financial aid?
@@boomboomreddy FAFSA Q, 44i (the following year) if the custodian was NOT your "parent," example: Non-custodial parent or grandparent or other then technically it gets reported under the students "untaxed income." See page 9 notes of FAFSA.
Very helpful! Love this🙌🏾 so much clearer
Hello! We are thinking to open an education savings account for our daughter, so far we have seen 3 options, ESA, 529 and IRA two of them are for education only and one is for retirement that can be used for education as well, the question I have is if we can move the money to another country, we are from Mexico (our daughter was born in the US) but we may move in the future, for that reason we are not sure if our daughter will study in the US, Mexico, Europe or somewhere else, so, before we open any account we want to make sure the money can be moved if is necessary. Thanks.
Great video thank you! Would the Roth IRA be under the parents name? So the Roth IRA would serve as the parents retirement as well as their child’s educational purposes?
This was helpful, thank you!
Very helpful. Thank you.
Can you roll your 529 contributions over to a Roth IRA? My state does a lot of matching and provides a $500 grant for an initial contribution so there’s a lot of extra money to be captured but it’d be nice to be able to help the kids out with their wedding or a down payment on a house if they decide not to go to college or don’t use all of the funds.
Hello,
Wanted to ask what type of camera and lens are you using for this video. The clarity is great. Thanks.
I heard that if a kid has a 529, scholarship is turned away bc of the 529 fund they have. Is that true? Can some answer this for me?
Yes it is true. If your kid get merit scholarship, by that time if your kid had a 529 plan. Then they say use your 529 funds first. After runout your 529 funds, if require more funds help. We help you they will say.
if my boy decided to go to another university outside Florida, then what happens? how can I use the money at this point? in this case which plan is
better the 529 saving or just the prepaid plan or NY 529 ? thank you
Great video and thank you. One question I have. Lets say my son chooses to go to college. I have a roth IRA and I want to pull out $10k to help him with his education expenses. I’m 45 lets say, if I pull the $10k to help him will I get a penalty for doing that? Since Im not at least 59 and a half yet.
If you have put 10k into it, you can pull 10k out of it without penalty. You will only get 10% penalty if you start withdrawing the earnings and gains.
You can pull the contributions out anytime for any reason. The gains can also come out for education but you’ll have taxes, not penalties before age 59.5 as long as they are used for qualified education expense.
Hi, I have a question! You say that using a Roth IRA is a good choice because of its tax advantages. However, when I have a normal investment account, my profits will only be taxed at 15%. A Roth IRA means my profits will be taxed at ordinary income levels, which is often 22% or higher, not to mention state taxes. For that reason, doesn't it make more sense to use a normal investment account?
No you are confused. Gains are tax free from a Roth IRA if you take those gains out in retirement.
@@TravisSickle
However, don't I have to pay the ordinary income taxes even for qualified expenses such as education or my first home purchase?
Poojan Thakrar yes, before age 59.5 you can take it out for a first home purchase or education expenses and avoid the 10% early withdrawal. BUT it almost never makes sense to do that. And the principal has no taxes since it was already taxed. The real value in the Roth is realized over time. So using the money for a home or education usually defeats the benefit.
Think of it this way, “there is no such thing as a good short term and long term investment.”
Even if that Roth IRA was tax free for the home purchase or educational expenses, I still wouldn’t do it. I would rather work nights and weekends than tap the Roth IRA.
@@TravisSickle Thank you very much for your reply! It means a lot when creators are willing to take the time and effort to talk to fans.
However, in my case, I am looking to go back to school in about 2-4 years and want to know how to save my marginal dollar for grad school. Because of that, I was looking into the benefits of a Roth IRA for college expenses. However, won't I incur a higher tax bill if I choose a Roth IRA over a normal investment account? My marginal tax rate is 22% but capital gains is 15%.
A lil late but if i wanted to open an account for my son to use for either college or trade school or whatever once 18yrs old and not have it affect his financial aid benefits if school is his choice, should the account or accounts be in my name and just pull out the initial investments sum and keep the capital gains in the account for possible further gains?
No, you can't put it in your name and use it for another beneficiary. You can roll over money once a year but I don't think that's what you're trying to do. There is little benefit to saving it into either and using it immediately.
Hi, for parents who have their kids at 43, wouldn’t ROTH IRA be better than 529?
Not necessarily. Withdrawals from the Roth IRA will affect financial aid. Also, in the grand scheme of your financial life, you should be maxing out the Roth IRA for your retirement and wealth building. Also, you can roll part of the 529 plan into your child's Roth if it's not used. There is no one BEST way for everyone but likely it's this way.
Thanks so much for the reply ! Can 529 be used for education in Europe ? Would it be good then to have both 529 and ROTH IRA ? in case I can save more than the max of Roth IRA? Thanks
@carolita4 depends on the school. There are schools you can use it for internationally. Yes, save into both is a good idea.
I have a private language institute and last week a family came and said
they cannot take our class unless we will take the 529plan.
The plan is for them not us, isn't?
They're asking if you are a qualifying institute.
Great video. Can you help me understand how a 529 compare to UGMA?
Yes, I should do a video on it.
Nice video. But can you open the ROTH for your new born who has no income. Or is that money coming out of your ROTh going towards school?
Must be earned income to contribute to Roth.
I would do a 529 for my kid asap, then a Roth for the kid when they generate income during teenager yr from part time job. This way you don't have to tap into your own Roth acct. You would loose the power of compound interest if you tap into your Roth acct. It's ok to tap into the kids Roth if your really need to, they still have their whole life ahead to contribute.
You mentioned that you cn take out a roth at any time. I thought that you can only take out the contribution amount after 5 yrs?
Nope. Contributions anytime. There are a couple of 5 year rules. First home purchase, over 59.5 but didn’t have a Roth IRA for 5 years, Roth conversions…
Is it worth trying both Roth and 529 even though I can not fully contribute $5500(or $6000) yearly for Roth IRA?
Max out Roth ira first. Student can borrow for college but you can't borrow for retirement. And if you really wanted to help your kid, you can withdraw contributions (what you put in) from Roth tax and penalty free, not the earnings prior to 59 1/2, and use that to help your kid.
Does financial aid require you to have $0 income? If so, how can you have earned income to open a ROTH IRA?
no -- depends on your financial aid too.
@@TravisSickle Thank you! I told my uncle, who is a dentist and owns his own dental business/office that he could employ/add his kids to payroll for things like administrative work or shredding paper, or even as equity owners so they can have earned income and thus qualify for a roth ira young. He said they have to have $0 income to qualify for financial aid, but like you said, that's not true.
He also said he and his wife opened a ROTH IRA 20 years ago and put in $2k, but it has only grown to $2,500 in 20 years!! I asked him if they actually invested in something or if it is in some low interest money market collecting dust.
Perhaps you can do a video showing people how or what they could use their ROTH IRA to invest in so that they don't think they just open an IRA and put money in and it will grow without investing in anything. Thank you!
That’s a good point. A Roth IRA is just a shell and the investments can be anything. Would make a good video. Too bad for the poor rate of return over 20 years. Sometimes people take money out and forget they did and then think that’s their rate of return.
Can a 529 plan be moved to an FIA
No, but that would be a great option. It would make more sense to have an immediate annuity that pays out during school.
The only annuity type options I’m aware of are the prepaid plans. But it’s not right for everyone.
So stupid question, do I set up the ROTH in mine or my child’s name?
Child’s, it’s a custodial Roth IRA. Depending on where you open it they may have a different form or application than a regular Roth IRA.
I'm in PA and we have a guaranteed 529 savings plan in addition to the investment plan. Can you talk about the guaranteed plan?
Is there a particular question you have about the plan?
Do you have any videos about UTMA accounts ?
I was wondering if an UTMA account would be better for my 10 year old son. I have a Florida pre-paid tuition plan. And I have not open one for my son yet?
Sickle Hunter Financial Advisors thank you so much
i dont understand. Roth IRA for your child or for yourself? you should be clear from the beginning .
and if for the child, how the hell can a child put money into a roth ira without earned income?
and if for yourself, why the hell would a financial planner tell you to use a Roth IRA to fund your child's education instead of using the money for retirement? sounds hacky.
again.. i can't understand this video because there is no clarity in what you are saying.
It’s a rule that you can use it for college. You can open a Roth IRA at any age and fund it with earned income. Kids jobs or if they work for you then you can avoid self employment and federal tax in certain situations.
How about Roth IRA in the child's name
They’ll need earned income.
ua-cam.com/video/3q9qRk6p0Yo/v-deo.html
@@TravisSickle thanks so much
WTF! Don't forget 59 1/2 rule!
Roth is retirement plan!
You cant take out the growth until 59.5 right? Only the principle.
@@alrocky yeah I think 529 is the way to go
@@alrocky I already put 15 percent in my retirement. If my child doesnt go to college I will just roll it over to my grandkids.
Helpful, thank you!