Should I save for my retirement or my childs college expenses?

Trying to determine the perfect savings option leaves many people confused and ultimately paralyzed with indecision. Consider a Roth IRA.* A Roth IRA may provide the flexibility you are looking for if you are trying to decide if you should save for retirement or for college. Consider the following facts about Roth IRAs: You can contribute up to $5,500 each year ($6,500 if you are age 50 or older) Contributions are made with after-tax dollars and are not taxable when withdrawn Contributions are withdrawn before earnings Earnings withdrawn and used for college expenses will be subject to ordinary income taxes but not the 10 percent premature distribution penalty from the IRS

When are withdrawals from a Roth IRA income tax-free?

Contributions Earnings

Available income tax-free at any time

Available income tax-free after your Roth IRA has been established for at least five tax years and you have attained age 59

What if I die before my child goes to college? A Roth IRA can be an important part of your overall savings plan, but it cannot protect your loved ones in the event of your death. Life insurance can provide the necessary funds to pay for future college expenses and complete your college savings plan if you are not there to help your loved ones.
Consult your tax advisor for more information. * Securities offered through MWA Financial Services Inc., a wholly owned subsidiary of Modern Woodmen of America. Member: FINRA, SIPC.

Form 2161 (Rev. 6-13)

Should I save for retirement or college?

Here is how one couple used a Roth IRA to help them achieve their goal of saving for the future while maintaining some flexibility for college expenses. John and Jane just had their first child, Robert, and they are trying to decide how they should save for their retirement and for Roberts college education. John opens a Roth IRA and contributes $5,000 each year for the next 18 years, for a total contribution of $90,000. Assuming the Roth IRA earns an average rate of return of 5 percent over the years, the account value of the Roth IRA will be $147,695 at the end of the 18th year.

Lets fast forward 18 years and examine the options available to John and Jane. If Robert does not go to college John and Jane can keep the money in Johns Roth IRA and use the money for their retirement. If Robert goes to college and receives a full scholarship John and Jane can keep the money in Johns Roth IRA and use the money for their retirement. If Robert goes to college and John and Jane need to use some of the money accumulated in Johns Roth IRA for college expenses 1. Up to $90,000 could be withdrawn income tax-free from Johns Roth IRA. This represents the total contributions made to the Roth IRA. Contributions are always withdrawn before any earnings. The earnings can remain in the Roth IRA and would be available for income tax-free withdrawals when John attains age 59. 2. If earnings are withdrawn from the Roth IRA and used for college expenses before John attains age 59, they will be subject to income taxes but not the 10 percent penalty that usually applies to withdrawals received before age 59.

Johns Roth IRA

$90,000 is available income tax-free for college expenses

Earnings are available income tax-free after age 59

Consult your tax advisor for more information.