First Person: I Regret Using a Roth IRA to Pay for College

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I don't regret helping my sons with their college bills, but I am sorry I tapped my Roth IRA to pay for college. I started saving within a Roth IRA in my late 20s when the retirement saving vehicle was first introduced. I neglected to put money into a 529 plan or other savings account designated for college. I didn't know that I'd blink and my children would be ready for college. According to a recent article by CNBC, the Roth IRA is often overlooked as a way to fund a child's college education. I never planned to use the Roth IRA to pay for my sons' college, but it became my go-to account for paying college bills. It was a simple way to help the family avoid student loan debt. Even though I didn't have to pay penalties by tapping my Roth IRA, I still regret using the Roth for college.

Selling losing stocks

One of the mistakes I made was investing in individual stocks within my Roth IRA without having a 30-year time horizon. If I had left the stocks in the account for retirement, I would have realized a gain. However, I ended up selling losing stocks to cover tuition bills. In one case, the stock gained 54 percent within 6 months after I sold it at a loss.

Setting specific savings goals

If I had put money aside specifically for college, I would not have felt compelled to use my Roth IRA to pick up my sons' college tab. When I have grandchildren, I plan to contribute to a 529 plan or savings account designated for either college or technical training after high school. A Roth IRA is really a retirement account even though withdrawals can be used for college as well as a first home purchase.

Maxing out the Roth

The Roth IRA was created in 1997 as part of a "Taxpayer Relief Act." I remember setting up my first Roth IRA account in the late '90s. I liked the fact that I would be able to withdrawal money tax free in retirement. In the early years, the yearly contribution limit was just $3,000. For 2014, the contribution limit for people 49 or younger is $5,500. If the contribution level was higher, I could have saved simultaneously for college and retirement. I could have invested one way for my retirement dollars and another way for my college dollars. Without a clear vision of my financial goals, I made too many investment mistakes.

Some people get lucky when it comes to saving for their children's college. In the late 1990s, one of my older friends sent her son to college on money she made during the dot.com stock market bubble. Not every child graduates from high school during a roaring bull stock market. My children started college just after the Great Recession. I missed out on the bull market run of the past few years because I sold most of my stocks to pay for college. Now, I'm back to building up my Roth IRA again. If I don't retire until I'm 72, I'll have 30 more years for the account to grow.

More from this contributor:

Using my Roth IRA to Pay off the House

Money Move to Get into a Lower Tax Bracket

Our Gen-X Retirement Timeline
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