For some time now, the cost of a college degree has been rising at perilously high rates, and as a result, the dream of one day going to college, for many, remains just that … a dream. With college tuition and associated costs rising so dramatically, it’s no surprise that people are looking for new and creative ways to save for these expenses. One such alternative method involves the use of a Roth IRA over more traditional college savings vehicles, such as 529 plans and Coverdell education savings account. That may sound bizarre. (A 529 Plan is an education savings plan operated by a state or educational institution.) After all, why would anyone use a retirement account to save for education expenses when there are accounts specifically designed to help plan for those costs? Nevertheless, here are three reasons why it may not be as crazy as you think.
What is an RMD?
(required minimum distribution)
Here are 5 steps to calculating your RMD. This is the minimum amount that must be withdrawn from a retirement account each year.
When are you subject to RMDs?
Traditional IRA owners are subject to RMDs beginning in the year in which they turn 70½. Beneficiaries of IRAs and/or Roth IRAs are subject to RMDs beginning in the year after the year of the IRA (or Roth IRA) account owner’s death.