Are you considering using your IRA to fund your child’s college? Stop. The benefits of choosing a 529 vs an IRA for your child’s college saving plan are many. This guide explores both options and shows why a 529 plan is the best option.
If you worry about saving enough money to send your child to their dream school and still being able to afford a comfortable retirement, you’ll want to carefully consider the pros and cons of a 529 vs an IRA savings plan.
To get to the head of this class, this guide will help you learn more about what a 529 plan is and why an IRA should only be a last resort when it comes to paying for college.
Since many people aren’t as familiar with 529 plans as they are with IRAs, let’s go over those first. Then, you’ll learn seven reasons why a 529 plan is the ideal tool for college savings.
A 529 plan, or qualified tuition plan, is a tax-advantaged savings plan designed to encourage saving for education costs.
There are two types of 529 plans:
- Prepaid tuition plans, which allow account holders to buy credits or units at participating colleges or universities for their beneficiary’s future tuition[*].
- College savings plans, which let account holders open an investment account to save and earn money on behalf of the beneficiary for qualified education expenses or tuition.
Before January 2018, 529 plan assets could only be used to pay expenses related to college and university attendance.
But thanks to The Tax Cuts and Jobs Act of 2017, college savings plans have now been extended to help pay for elementary and high school expenses for public, private, and religious schools too.
Since prepaid tuition plans are less popular, let’s discuss why so many people use 529 college savings plans.
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