1. Home
  2. Business & Finance
  3. Saving for College

Beginner's Guide to Roth and Traditional IRA's as College Savings Accounts

By , About.com Guide

3 of 6

Investment Options and Tax Benefits for a College IRA

Investment Options:

Permitted investments for IRA’s include the full menu of individual stocks, bonds, CD’s, and mutual funds. In addition, annuities can be purchased in IRA’s, but generally should be avoided.

Tax Benefits:

The big advantage of any type of IRA is the tax-deferred growth. In other words, you do not have to pay tax each year on the interest, income, and growth of your investments. This helps super-charge your growth rate even if you have to pay the tax later, as is the case with the Traditional IRA.

However, this benefit is partially lost when money is withdrawn for education expenses. Though the IRS waives the 10% penalty for an early withdrawal, you are still liable for income tax on money that has never been taxed elsewhere. This would mean any money withdrawn from your deductible IRA, and any gains from a Roth IRA, would be hit with income taxes.

Explore Saving for College
About.com Special Features

10 Things You Can Do Today to Improve Your Credit

Easy steps to take control of your credit card debt. More >

Holiday Central

What to eat, where to go, fun things to do and how to save money on the perfect gifts. More >

  1. Home
  2. Business & Finance
  3. Saving for College

©2009 About.com, a part of The New York Times Company.

All rights reserved.