But this doesn't mean you avoid paying regular income tax on the earnings. You're 35, your child is 10. The only exceptions are for payments to your beneficiary after your death, payments attributable to your being disabled, and the first-time homebuyer exception. But this benefit comes at the cost of converting capital gains into ordinary income. Depending on your style of investing, you may find that your savings would perform just as well in a regular, taxable brokerage account.
Many people face the challenge of saving for college and saving for retirement at the same time.
If you're in this situation, the Roth IRA may permit you to adopt a favorable strategy. But there's another choice. You'll consider one-fourth of this account to be part of your college savings. When the time comes to pay for college, you withdraw one-fourth of this account. And that means your distribution is entirely tax free, unless your earnings have grown so fast that they equal more than three-fourths of your account.