Financial advisor Travis Gatzemeier of Kinetix Financial Planning also points out that a Roth IRA can provide additional flexibility over a traditional education style account, although there are some drawbacks.
The Roth IRA is a type of account that is funded with after-tax dollars, which are able to grow over time without tax implications. When you go to withdraw money from a Roth IRA in retirement, you don’t have to pay income taxes on distributions. Further, you can take contributions (but not earnings) from a Roth IRA before retirement age without a penalty.
“These accounts can be used for education, retirement, or even a first time home purchase,” he says. “You can distribute contributions made to a Roth IRA tax and penalty free as long as it's been five years since you first contributed, and any earnings used for qualified education will be subject to tax, but no penalty before age 59 1/2.”
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