Can 529 plans be used for overseas education?

529 vs IRA for investing in child's education?

• I am looking to start investing for my daughter (1 year old) for future education. I am hoping this would be for for college expenses. I have researched 529 plans and my state has a pretty good one with tax advantages. My concerns are these with 529 plans: What if my daughter decides not to go to college or what if she gets a full scholarship to go to college? I understand there is a 10% penalty if expenses are withdrawn and not used for college. My daughter is probably going to be an only child and my wife and I do not plan on going back to school. Therefore, the option of changing the beneficiary on the 529 plan is not feasible. Am I better off opening up a Roth or Traditional IRA in my wife's name since you can withdraw money for education expenses?

• Answer:

  In my opinion....YES. I actually recommend that to many of my clients who do not plan to, have the funds to, put more than 8k a year away. The reasoning is..... 529s do not allow you "real control" over your invested dollars...at least not at this time. You MUST chose either a "age-based" or "risk-based" portfolio...and then the "manager" of the 529 determines what "fund mix" (percentages) go into what funds...all "fund based"...no choices of going to all cash, all fixed income, etc if war breaks out, a major catastrophe of any kind...short of "early withdrawals" and the associated penalties. Some do offer an ability to chose funds....but only from the funds they offer...not "any fund" you prefer...unless you prefer one of their "pre-selected" choices. 529s are best for people who have "chunks" of money to put aside...like 10k, 20k,...up to 200k++. Even though they are promoted as great investment choices for "smaller budgets"...I differ in that opinion, greatly. IRAs as you've pointed out...allow you to save for "higher education" for yourselves or your dependents (per current law)...and withdraw for education..without penalty....but you'll still owe taxes...state and federal, if you don't live in NV, TX, FL, etc... 'course tax laws could change before then....but never count on unknowns! Saving for your child's education within your IRA, however, allows for a few advantages...if your child is "brilliant", cause we all think so(!), and they don't need your money (scholarships, etc) then you've actually saved for your own retirement!!! Yeeehaaa!!! If your child does need money for college...typically they can qualify for "loans"...that DO NOT charge interest or require payments until 6 months after graduation...that can buy you an additional 4-8 years of growth!!! Once the child actually needs to pay for college...any leftover funds...are yours! (Wouldn't it be amazing if they actually get a good job and want to pay of their loans themselves...saving your money for retirement?) Also, YOUR retirement account savings only count "fractionally" towards your child's qualifying for loans, grants, etc...where as 529s are Specifically targeted towards your child's education and would almost certainly count as close to "dollar for dollar" against such grants, loan, etc qualifying. Oops, almost forgot one of my primary reasonings....IRAs allow you to choose your investments!!! YOU are in control of what funds, stocks, bonds, CDs etc to the money is invested in.....you (or you and your Financial Advisor) chose what/when/how much...is to be invested in what, for what reason....based on what's happening in the world at the time. To me....Greater Control....More Investment Choices/flexibility...Potentially Dual Benefits from the savings...more than offset the "eventual" taxation issue that MAY occur later. Heck, your child may decide to become a "flower child" and never go to college at all.