Previous | Four Things to Consider Before Retiring Early Next | Preparing for a recession
October 13, 2022 / The Merrill Anderson Company
How one savings plan can help you save for college and retirement

How one savings plan can help you save for college and retirement

Families with children typically have three important financial objectives: buying a home, saving for college, and building retirement capital. That is a daunting challenge.Money growing on plants and being saved in a piggy bank

 

There are savings plans that come with tax benefits, which makes growing the account easier.  For example, the traditional IRA offers tax deductions for contributions, and the Roth IRA provides the potential of tax-free payouts (contributions are subject to income limits). Both accounts defer taxes on account earnings.

 

The 529 plan is a popular approach for saving for college. Again, account earnings accumulate tax-deferred, and withdrawals used for qualified education expenses are tax free. However, earnings on funds not used for education may be subject to taxes and penalties. Many families cannot fund both education and retirement, so which one is better?

 

A new, bipartisan proposal made in June would resolve that question for many. The “College Savings Recovery Act,” proposed by Democratic Senator Bob Casey of Pennsylvania and Republican Senator Richard Burr of North Carolina, would permit a direct rollover of unused 529 account assets into a Roth IRA. Funds not spent for education would be eligible for retirement funding.

 

There are some limits imposed on the rollover, however. The contribution limits for 529 plans are far greater than those for Roth IRAs. There is the potential for abuse of 529 plans to get around the Roth IRA limits, and that would be foreclosed in the legislation by requiring that the 529 plan be in existence for at least 10 years and the rollover be no larger than the plan balance five years earlier.

 

Still, if this liberalization of 529 plans is adopted, it may tilt the savings priority decisively in that direction.

 

 

© 2022 M.A. Co.  All rights reserved.

 

Recent Articles
Preparing for a recession
Preparing for a recession

Preparing for a recession

July 10, 2024 / Warren Hurt

The importance of renters’ insurance
The importance of renters’ insurance

The importance of renters’ insurance

July 03, 2024 / Laura Lowry

Teaching children how to budget
Teaching children how to budget

Teaching children how to budget

June 24, 2024 / Danielle Ritter

How to save money at the grocery store
How to save money at the grocery store

How to save money at the grocery store

June 19, 2024 / Lisa Hogue

Turning your hobby into a source of income
Turning your hobby into a source of income

Turning your hobby into a source of income

June 12, 2024 / Kia Treml

Is it time to sell your home?
Is it time to sell your home?

Is it time to sell your home?

June 05, 2024 / Katie Rittel

Seven tips to help you save for vacation
Seven tips to help you save for vacation

Seven tips to help you save for vacation

May 17, 2024 / Megan Witmer

Gig economy offers workers independence
Gig economy offers workers independence

Gig economy offers workers independence

May 14, 2024 / Shelby Yinger

Budgeting for home improvements
Budgeting for home improvements

Budgeting for home improvements

May 09, 2024 / Jenny Madden

Join our e-newsletter

Sign up for our e-newsletter to get new content each month.

NOTICE: YOU ARE LEAVING F&M TRUST!

You are now leaving the F&M Trust website. Links to third-party sites are provided for your convenience. Such sites are not within our control and may not follow the same privacy, security or accessibility standards as ours. F&M Trust neither endorses nor guarantees offerings of the third-party providers, nor is F&M Trust responsible for the security, content or availability of third-party sites, their partners or advertisers.