Like Coverdell accounts, Roth IRA contributions are capped. Account holders less than 50 years old are currently limited to $5,500 per year, while those ages 50 and older can contribute $6,500 per year, according to the IRS.
Any IRA is technically supposed to be used as a retirement account, but there is an exception that allows account holders to withdraw money for higher education. But the money in that account has to cover retirement, too.
The federal tax rules state that withdrawals for qualified higher education expenses, such as tuition and textbooks, are not subject to the 10 percent additional tax on early withdrawals from retirement accounts. However, the money must be withdrawn for the education of immediate family members: parents or their children.
"I try to encourage clients to keep IRAs for retirement purposes," says Almonte, who used 529 plans to save for college for all five of his sons. "There are loans for college expenses but there are not many loan options for retirement."
While 529 plan rules limit families to using funds only for higher education – or else face a tax penalty – using money saved in an IRA could eat into a parent's retirement fund, so student loans are often a better solution for families.
"Parents should be careful to not overextend themselves," says student loan expert Heather Jarvis. "Federal student loans are a safe way to borrow for student expenses as long as families only borrow what they need and can afford to repay."
Trying to fund your education? Get tips and more in the U.S. News Paying for College center.