My stepkid is currently in 8th grade, about to be in high school. (ðŸ˜) We're finally in a place where we can put money aside, if she decides to go to college. I've been looking into the best/safest/quickest way to save for her in the little time we have left.
What's the best option between a 529 and savings account?
I'm kind of leaning towards a 529, because I'm afraid of one of her biological parents taking money from her if it isn't super secure. If she doesn't end up going to college or doesn't use the whole amount, can I roll the full amount into a Roth IRA for her?
I appreciate the help. I'm not certain about this at all
529 Savings Plan vs. Savings Account
byu/BlockPlastic7249 inpersonalfinance
Posted by BlockPlastic7249
2 Comments
529 benefits vary somewhat by state, so you should look up your own. But in general the real benefit is tax-free growth. At this point there is not going to be a ton of growth since you are only about 4 years from needing the money and it will hopefully not be invested aggressively. But go ahead and start putting some money into a 529 if you want.
The Roth IRA option is better than losing the money but it’s not a secret cheat code. There is a $35k limit and the money needs to be done over time to stay under the regular annual IRA contribution limits (currently $7500/year).
A 529 is probably the best option for growth, security, and offers some advantage if you are applying for need based grants (moreso than a savings account)
At this point in time the way i would approach the 529 is to contribute and grow it assuming she will use it in year 4. This should give you the most amount of time to compound. Think of it as, you are using the 529 to get a free/discounted year 3 or 4. It’s unlikely that you have enough time to fully fund a college education but that is also highly dependent on what financial aid you get and what the cost of the school is.
Yes if it’s not used it can be rolled into a roth – there are limits but you should be within them or work around them.