Is Roth IRA Good For College Savings? 
Most students start college with little financial preparation . Sometimes parents who have particular objectives will start saving money for their childrens college education , however , that is not common . The result is that college is now one of the top three lifetime expenses for families that send their children to college . There have been several plans advanced to help families accumulate money to send their children to college . You are probably aware of them . The greatest weakness of these plans is that the money is set aside for an individual student . While there may be an opportunity to name another student there isnt a clean way to recover the money without additional taxes and penalties . A Roth IRA has some income restrictions that might make it unavailable . However , it is a simple plan . Contributions to a Roth IRA are made with after-tax money . There isnt an age limit on who can participate . Even if you already have an employer sponsored you can participate in a Roth IRA . If there is a non-working spouse an IRA can be started on his or her account . As I mentioned before there are some income restrictions based upon gross income level . Once the account has been in force for five years the funds can be withdrawn . These funds can be received free of income tax after age 59 and a half . You can pass the Roth IRA tax free to heirs if you have had the account for more than five years . If you use the account to fund college expenses you can withdraw the funds without paying the 10 % early distribution penalty tax . The money that you withdraw from the Roth IRA is free of income tax as long as it is less than the amount that you contributed . Because of the age restrictions a Roth IRA would be particularly attractive to a grandparent trying to accumulate money for a grandchild . A Roth IRA is best started as early as possible . Most people are in a lower tax bracket in their early years and that amplifies the effectiveness of the Roth IRA . Establishing a systematic deposit plan can be quite effective in accumulating money . If the student receives money from a parent or from their own Roth IRA it must be noted on the Free Application for Federal Student Aid -LRB- FAFSA . -RRB- The receipt of money from a Roth IRA can reduce the students eligibility for other forms of student aid . Incidentally , money coming from grandparents is not monitored . An alternative to a Roth IRA might be permanent life insurance . It has many of the same tax characteristics and has the unique feature of plan completion if the person insured dies . Permanent life insurance is also treated differently by the FAFSA . You could check with a college finance officer about that aspect . The advantage of using either a Roth IRA or permanent life insurance is that it gives your flexibility . If the child decides that they want to run away and join the circus instead of attending your alma mater , you still have the money and in the case of life insurance , the policy might serve other purposes . 