The Money Mustache Community
Learning, Sharing, and Teaching => Ask a Mustachian => Topic started by: snshijuptr on September 15, 2022, 09:31:02 AM
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I'm planning to contribute to both my kid's college funds and hope to retire at about the same time they head off to college. Our family income is now high enough that we do not qualify for the tIRA deduction or a Roth IRA. Should I contribute to a non-deductible tIRA or contribute to the 529 accounts? What factors do I need to consider?
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Assuming that your kids do go to college and you really want to fund this in a significant way, then do the 529 before a non-deductible tIRA that you leave in the tIRA. Hits a goal and avoids the headache of tracking non-deductible amounts for a long time.
Now - the backdoor Roth IRA has not been killed yet, so if you can get any existing deductible tIRA balance out there transferred into a 401K, 403B, 457B, then you could do the backdoor Roth where you make a non-deductible contribution to the tIRA and immediately convert it to Roth.
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They're two different things for two different purposes. So what do you need the money for more, retirement or college?
Personally, I have chosen VTSAX instead of the non-deductible IRA. Our calculations suggest our tax rates will remain relatively high throughout a good chunk of our retirement, so I'd rather not have to pay income tax on future IRA withdrawals when I don't even get the benefit of the initial tax deduction up front. And of course with IRAs, you also get to mandatory distributions in your 70s. So prefer to keep my non-401(k), non-529 money in low-capital-gains investment funds that give me more control over what I take out when (and under what tax rate).
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I'm planning to contribute to both my kid's college funds and hope to retire at about the same time they head off to college. Our family income is now high enough that we do not qualify for the tIRA deduction or a Roth IRA. Should I contribute to a non-deductible tIRA or contribute to the 529 accounts? What factors do I need to consider?
The Investment Order (https://forum.mrmoneymustache.com/investor-alley/investment-order/msg1333153/#msg1333153) sticky has some suggestions and a bunch of links for more details. Won't apply to everyone - how does it look to you?
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Do both.
Backdoor Roth IRA (tIRA -> rIRA) and then super-fund the 529.
We funded each child’s 529 with 20-30k the day they were born with the hopes that after 18 years of growth it would cover a in state USC Tuition. Or a good chunk of an ivy if they get in :). We do not continue to fund the 529 monthly beyond the initial deposit.
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I'm planning to contribute to both my kid's college funds and hope to retire at about the same time they head off to college.
How many years from now is that? Much of the tax advantage of 529 is the tax-free growth; the initial deduction is only state.
But also, can you retire 2 years before kiddo starts? Financial aid, iirc, is heavily tied to recent income, then liquid assets, least of all house and retirement savings. Time it right and the kids will qualify for hefty financial aid, even full ride at some pricy colleges. Overfunding your 529 is a real issue. Overfunding your retirement, not so much.