Using a Roth IRA for College and Retirement Savings

Many people today are concerned bout retirement and college funding.  One approach that can ease the burden for both is to contribute to a Roth IRA.  This is a powerful tool to double as a retirement and college funding account. 

If you started funding the Roth when your child was born and you contributed $5,500 each year for 18 years, your total contributions would equal $99,000.  Consequently, if there is a net 8% return, your Roth would have grown to $205,976.34.  Since you have already paid tax on the $99,000, you can withdraw it tax free and free of any penalty, using it to pay for college tuition.  The remaining balance can continue to accumulate tax-free until you reach retirement. 

Tax-free withdrawals of your contributions from the Roth IRA are not limited to education.  You could make a down payment on a home with the $99,000 instead. 

See Frank Armstrong III, Use Your Roth IRA to Save For Both Retirement and College, Forbes, Aug. 11, 2014.