Financial Tip of the Month: Use Your Roth IRA as an Educational Savings Account
I speak with young people all the time and they ask me what to do to plan for their retirement and their kids' education. Most often they have heard of a Roth IRA but they don’t know the ins and outs of it.
I like to explain a Roth Ira as post-tax retirement savings account because most people don’t realize that they can still access their principle, you just can’t touch the growth without penalty before 59 ½.
As an example let’s say you stash away $5000 a year for 4 years and have $20,000 in principle and over the 4 years it grows to $25,000. You are allowed to withdraw the original $20,000 tax and penalty free again you just can’t touch the $5000 in growth till 59 ½ without penalty.
So one way parents can save for their child’s education without having to deal with all the restrictions of a child’s education account is with a Roth IRA. They can save for their education and let that money work for their retirement as well. So everything that they save can be withdrawn without penalty for the kids' education but the growth from those investments goes to their own retirement. And you have until April 17th of this year or you file your taxes to make a 2017 contribution.
Interesting, huh? This is just another way I can help people plan with some out of the box thinking. Give me a call!
Frey Financial Incorporated is located at 761 w beaver brook ave suite 4 Spooner wi 54801 and can be reached at 715-939-1300.
Securities and advisory services offered through Sagepoint Financial Inc, member FINRA/SPIC. Insurance services offered through Frey Financial Incorporated, which is not affiliated with Sagepoint Financial.