While it is commonly said that for most people a home purchase is the largest investment they will ever make, a parent’s investment in their child and the child’s future – including college tuition – oftentimes far exceed a the costs and financial complexity of a simple real estate purchase. Of all of the expenses parents face during a child’s upbringing, very few are more dreaded than the eventual price tag associated with attending college.

By taking a look at different investment options and financial planning strategies, parents can compare the different options at their disposal which can make saving for a child’s education a feasible task. In this situation, most parents consider either a 529 Plan or a Roth IRA as the ideal way to save. This article will focus on a few of the advantages of each so that you can make an informed decision as to the correct savings strategy for your family.

How Can a 529 Plan Help You?

A 529 plan is an investment option sponsored by either a state-level government or an educational institution. There are two types of 529 Plans, Prepaid Tuition Plans and College Savings Plans, with each having varying specifications to further help you choose the ideal savings plan for your child. Overall, 529 Plans have a number of benefits which separate them from Roth IRAs when it comes to saving for your student’s future, including:

• Of the two different types of 529 plans, prepaid tuition plans have more restrictions but allow parents to lock-in tuition costs at a specific rate when opening the account. This is a great option when significant tuition increases are expected between opening your savings plan and your child going to college.
• Many states offer state tax deductions on contributions to eligible state-sponsored 529 plans.
• There are no income restrictions on contributing to a 529 plan, so this option is open to families whose annual earnings exceed the $176,000 maximum for Roth IRAs.
• Annual contribution limits are often quite high, well into six-figures, where as a Roth IRA currently has an annual cap of $5,500.
• For children who earn scholarships to college, a 529 plan can be used for other educational expenditures with no penalty.

When a Roth IRA Becomes Useful

Despite the numerous advantages of investing in a 529 plan, there are still situations where a Roth IRA may be a better choice for your child’s educational planning. Some of the notable advantages are:

• In the event that your child does not go to college, your invested funds can be shifted towards your retirement, rather than needing to be used for another family member’s education or facing withdrawal fees as seen with a 529 plan.
• Roth IRAs give you much more freedom and flexibility on how to invest your funds, whereas 529 plans often have limited options.
• After the age of 59, your savings can be used tax-free for any purpose, not just educational expenses.

Out of more than 70 Roth IRA account provider options, these are our top 5 favorites, each meeting the needs best of a different group of retirement investors:

Brokerage Company	# No Transaction Fee (NTF) Funds	S&P500 Index Expense Ratio	Minimum to Start	$/ Stock Trade	Perfect For:	Why?
Learn More	3,100+	0.095%	$250	$7.00	Low Cost, Long-term Investor	Low cost mutual funds and stock trades, very large selection of mutual funds (14,500+)
Learn More	2,500+	0.170%	$2500	$9.95	Involved Investor	Access to research, analysis software, and best in industry customer service
Learn More	4,500+	0.170%	$2500	$8.95	Sophisticated Investor	Advanced trading platforms; Free streaming quotes & broker access
Learn More	1,300+	0.090%	$500	$9.99	Day Traders	Investment Research & Platform for serious investors
Learn More	400+	0.090%	$250	$6.95	New Investors	Lowest minimum to get started and low trading fees on stocks

When it comes to saving for your child’s college education, thorough planning can mean the difference between financial freedom to attend the school of their choice, and struggling to cover rising tuition costs. For parents, both 529 plans and Roth IRAs each present a number of benefits and disadvantages which need to be thoroughly examined in order to choose the right investment strategy for your financial situation and child’s educational goals. Every family and student’s financial needs will be different, so it is important to carefully identify your individual savings goals before choosing any investment plans.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

By Charles Minoza

College education costs a lot of money. If you are a parent trying to send your kid to college or you are trying to look for a college for yourself that best suit your career path, it would take a lot of money to take that first step of enrolling in college. Even if our economy is slowly moving in a steady pace, college expenses still dig deep in your pocket. The best way not to feel this expense in one blow is to plan ahead of time. Saving for the future is really the way to go. You will never know how expensive college education can really be. Get that calculator ready and let’s take a look at a typical college expense.

College Educational and Lifestyle Expenses

The basic educational expenses for one college student involve the following:

1. Tuition Fees – This is the most expensive fee for college. It can go as high as $35,000 per academic year. Schools have payment options to help out students enroll. Not everyone can pay an upfront payment of $35,000. The fee usually would vary from the course you would choose. Take note as well that tuition fees might increase every year.
2. Books – Books would probably cost about $200-$500 per semester depending on the course.
3. Program Fees – These are on the side miscellaneous fees which certain courses require. For example, if a student needs to use lab facilities and the like for his or her course then he or she will have to pay for it.
4. Supplies – The basic supplies that any student need might include just a simple pen and paper to a tablet or a laptop.

If you think this is already expensive, it’s just basic educational requirement. Let’s take a look at lifestyle expenses of a student:

1. Dormitory – Housing is another big expense of a college student, unless you live right across your university. Most universities have student residences. The least expensive houses are off- campus. With dormitory living, there might be monthly utility bills to pay.
2. Food – Nowadays, most colleges have prepaid meal cards but you will still have to budget for food when a student eats out.
3. Other expenses – This might include laundry, phone, internet, medical, transportation and the like.

Importance of Saving for College

Having seen the expenses above, we now have a ballpark figure of a typical college student’s overall expense. But knowing this just a semester before enrollment would be stressful on the budget. It is important to plan ahead of time. If you have money saved for college, a year before enrollment is just about the right time to prepare for financial expenses. But the best time to start preparing for college expenses is when your kid is born. You never know how much that tuition fee would increase when the time comes that your kid chooses to become a doctor. And this is when Plan 529 really comes in handy.

What is Plan 529?

Plan 529 is an initiative done by the government to help parents save money for their kid’s college education. It is an education savings plan, named after section 529 of the IRC, which created different types of savings plans for parents to choose from. Nearly every state in the country offers a 529 plan, so if you are a resident of CA but choose to study in NC, it is possible. Taking advantage of this plan even has federal and state tax benefits. It is low maintenance and flexible. It is actually the best way to save money for college.

It is never too late to save for college. Start saving now and lessen the stress of digging deep in your pocket when it is time for college enrollment. Let Plan 529 help you consider your options in saving college money.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

By Brandon Tvedt

In today’s increasingly interconnected, competitive world, education is becoming progressively more important in determining which individuals will have a leg up on others during their journey through life.  Higher rates of education are positively correlated with all sorts of real benefits, such as higher lifetime earnings, greater access to health care service, lower rates of poverty and unemployment, and more.

However, as the benefits of education have become more apparent, the costs of attaining one have risen as well, making college difficult to afford for some individuals.  If you are worried about being able to afford tuition and other associated costs for your children, you may want to consider starting a responsible investment program designed to help save for college expenses as soon as possible.

If you have no clue where to start in terms of evaluating the different financial instruments available to help you begin saving, consider starting your search by taking a look at responsibly managed investment in a something like your states’ 529 plan.  This can help ensure that your child won’t be deprived of the essential opportunity to educate themselves.  Remember – it is never too early to start saving for higher education.

So, what is a 529 plan?

In a nutshell, it is a financial instrument that is directly operated by a state, designed for the benefit of local residents, and intended to assist them in securing funds for explicit use towards higher education.  Almost all states have at least one version of a 529 plan, and some have several.  For more specific information, look up what your state offers, or consult with a professional financial advisor.

Broadly, these plans can be categorized into two separate groups; savings plans and prepaid plans.  States can choose to operate one kind of plan or the other, or to offer both.  Savings plans are operationally quite similar to instruments like IRAs or 401(k) plans; the value of the account fluctuates according to the performance of the options.  Prepaid plans let you instead put all or part of the cost of a public college education down in advance.

State by State Plans

Typically, plans of both kinds are completely convertible between states.  That is to say it is entirely acceptable to apply funds invested in one state towards expenses incurred from attending school in a different state entirely.  Most 529 plans, despite state of origin or type, offer extreme flexibility, substantial rates of deposit, and low-maintenance.  If someone in your household will be attending college, you should definitely speak with your financial advisor about the viability of an investment into one of your states’ 529 plans.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

by Charlotte Cannizarro

When most couples first learn that they are having a baby there are two thoughts that race through their minds! Will we be good parents? and How are we going to pay for a college education?

In today’s economy, it is more important than ever to begin saving for a college education. There are a number of practical ways to save …here are the top five tips that will get you on the right track:

• Be Realistic! Yes, the cost can be overwhelming at first glance, but payments for tuition occur over the course of the four years  (for a undergraduate degree). Remember this rule: one third of college costs are from past income in the form of savings, one third from current income and financial aid, and one third from future income in the form of loans. Use this tip – base the amount you need to save on the average cost of college in the year of your child’s birth. This will account for tuition increases until your child reaches college age.
• Start Right Away! The sooner you start you more quickly the savings will add up with interest – so time is on your side. Setting up automatic payments will insure that your contributions are made on a timely and regular basis. Remember – it is never too late to start saving even if you can’t begin right away – every dollar you save is one less dollar you will need to borrow.
• Review Your Plan! If you can only save a little at first that’s okay. Saving something is better than saving nothing. When your life changes due to a raise, bonus, inheritance or even a lottery win make sure to redirect some of those funds to your college savings plan. Have a percentage in mind that is at least equal to the percent of your raise.
• Check Out a 529 Plan! A 529 College Savings Plan provides significant tax advantages since the earnings are tax deferred and distributions are tax free when it comes time to use them for college education expenses. The plan will most likely have very little impact on your child’s eligibility for financial aid. Tip – buy direct, not through a tax advisor. Look for ones in your state, as you can take a tax deduction. Also consider only ones with fees less than 1%.
• Make Asset Allocation Adjustments! You college fund will most likely begin with a mix of aggressive investments like stocks and then transition to a mix of more conservative investments like bonds and money market accounts. At the time you child enrolls in college the fund investment plan should reflect no more than a 20% investment in stocks. Remember – the stock market will experience ups and downs which will have less of an impact over time. Minimize potential losses by adjusting investments as the time for college draws closer.

There are also a number of college savings rebate programs, the most popular one being Upromise. This program offers a 5% rebate on all purchases made with the card when used to shop for items anywhere that display their logo.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

By Jerry Upshaw

College is the quintessential objective and passage-way into a career field.  Although a college degree doesn’t necessarily equate to future success, it does however ensure the possessor to certain inalienable qualifications that are vital and unequivocally imperative to such professions as doctors, lawyers, engineers etc. The task of saving for college is typically the focal point of families that wish to prepare for their child’s future beforehand. According to CNN, Public Universities’ tuition spiked 8.3% from 2012 to 2013[1]. According to the US Department of Education the lowest national average for college tuition at a 4 year institution is approximately $6,669. That averages out to about $444 per credit hour[2]. With the rate of tuition rising from 8-10% a year, if you had a child today by the age of eighteen tuition costs would be up almost 200%, somewhere in the ballpark of $24,000 a year.

Families who create and invest in a savings plan for their child early can sidestep these financial burdens at a reduced cost. But, what are the options? Parents can utilize a tax advantage savings plan known as a 529; it’s federally backed IRS program designed solely for college expenses for a designated person in the future. The 529 plan is divided into two categories: prepaid and savings. The prepaid plan allows an individual to buy tuition credits at the rates currently listed with an added premium. The prices of those credits are locked in for future use even if the cost of those credits at whichever institution you choose in that state rises (also includes private institutions that the student gets accepted into). The prepaid plans are backed and insured by the state, pays out directly to the school in scheduled payments, but are also restricted to certain age limits and time periods. The prepaid plans also require a student to be a resident of that particular state, and, depending on the plan, may or may not cover the cost of all the student’s college expenses.

The savings plan is the exact opposite; the tuition rates are not locked in, and the money that is accrued in the account is the money that will be applied to the student’s future expenses, even after those said institutions raise their “cost to attend.” However, unlike the prepaid plan, the savings plan covers all student expenses including room and board (on and off campus), books, computers, etc. Also a great feature, the 529 savings plan allows the expenses to be taken out all at once instead of installments. There is no residency requirement for the savings plan, but, the accounts are not insured and backed by the institution. Any money lost or gained in the savings plan is the responsibility of the account holder. By utilizing the 529 plans early, parents and families can guarantee the success of their child/children’s future financially, and afford them all the necessary opportunities needed to reach those said levels of success.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

By Ashley Curtin

Many people tend to wonder why saving for college is important when they can just take out loans and pay them back later… right?  Today there are more and more reasons every day to start saving for college as soon as possible.  College is a gift of a life time; it opens doors to many job opportunities and the ability to become an independent person.  But if saving for college doesn’t start early, college can become an annoyance that many students will have to be paying for the rest of their lives.

According to the College Board, the average cost for tuition and at four-year public institutions has increased nearly 51% over the last 10 years.  In addition to this expense, it’s almost a guarantee that private schools are double the cost, and these costs will only keep rising.  Saving for college can help decrease the amount of loans students will need to take out, and also decrease the burden of all the debts they will be in.  It’s now beginning to be a common occurrence that students are more focused on the debt they are in from college more than their studies.  Isn’t the whole point of college to learn new things and get a degree?

Like any other big investment, the key to saving for college is to start early and save on a regular basis. By saving a set amount at certain times, the money you are setting aside can grow as your child does.  Although you may not be able to save the full amount of money needed to pay for a four year degree, saving early goes a long way. A family that begins setting aside $50 a month when their child is born can accumulate over $21,000, in an account that earns 7% interest per year, by the time the child turns 18 and is ready to head off to college.

A way to start putting away this money is to set up a 529 plan.  A 529 Plan is an education savings plan operated by a state or educational institution designed to help families set aside funds for future college costs. It is named after Section 529 of the Internal Revenue Code which created these types of savings plans in 1996. There are two types of 529 plans, prepaid plans and savings plans.

Prepaid Plans: Prepaid plans allow someone to purchase tuition credits at today’s rates to be used in the future. Therefore, performance is based upon tuition inflation.

Savings Plans: Savings plans are different in that all growth is based upon market performance of the underlying investments, which typically consist of mutual funds.

Another way to start saving would be to open a Coverdell Education Savings Account. A Coverdell Education Savings Account (ESA) is an account created as an incentive to help parents and students save for education expenses.

The total contributions for the beneficiary of this account cannot be more than $2,000 in any year, no matter how many accounts have been established. A beneficiary is someone who is under age 18 or is a special needs beneficiary. Contributions to a Coverdell ESA are not deductible, but amounts deposited in the account grow tax free until distributed.  The beneficiary will not owe tax on the distributions if they are less than a beneficiary’s qualified education expenses at an eligible institution.

As tuition increases it becomes more obvious that saving for college early on is becoming more important.  Not only will it take a huge amount of debt away, it will take a load off a student’s shoulders knowing they don’t have much debt to pay off once they leave college.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Not sure which college savings plan is right for you?  See also NerdWallet’s Best 529 Savings Plans of 2013.

By James Sallery

A college education is expensive. In today’s tough economic climate, more and more families are shying away from the economic commitment required to send family members away for a first-rate education. However, whilst the large overall cost might be daunting for many low-to-middle income families, it’s an investment that usually pays off – the earning potential for a college graduate can dramatically outshine those without degrees. In saying that, the prospect of being in-debt for decades can still be off-putting for many potential students and their families, even if earnings see a spike after graduation. Thankfully, the 529 plan can make a difference.

The 529 plan acts to help families save for future college education costs – and it has specific tax benefits when compared to normal savings accounts. Also known as a “pre qualified tuition program”, the 529 plan was launched in 1996 under the Small Business Protection Act, as a way for families to save for future education expenses.

One of the main advantages of the 529 plan is it’s tax status. Earnings are accumulated under a tax-deferred status and any educational expense distributions are tax free. The plan is normally operated by an individual state or educational institution, but your prospects for saving are not limited to in-state organizations, although various plans can differ from state to state.

There are two main types of 529 plans: A savings plan and prepaid plan. Although both carry tax benefits that are aimed at achieving the same goal – saving for college – they operate in a slightly different manner. Saving plans are similar to 401k or IRA plans in that they invest your money into mutual funds in an attempt to grow the investment. The plan will offer you some specific options as to where you want your contributions to be invested, but they carry a risk as your account could go up or down depending on the performance of the investment.

Pre-paid plans allow you to pay the future cost of education up-front over a number of years. Pre-paid plans are normally put in place for in-state colleges but can be converted for private or out-of-state use at a later date.

Both plans aim to fund tuition costs at higher-educational institutions, whilst some plans will also cover other implied costs of a university education such as board, fees, books and other living costs. Whilst the upside and potential gain available from a savings account is much higher, there’s also a higher amount of risk involved. Pre-paid plans have more specific limits as to who can enrol into such a plan, but savings will be guaranteed and backed by the state.

Not only has the advent of the 529 plan allowed countless families to put money aside for college in a planned and regulated manner, but it has also offered them a range of financial benefits in doing so. For any family planning to send relatives to college, the 529 plan should be considered as a way of gaining specific tax benefits on the worthwhile cost of a college education.

Disclaimer: This article is a part of NerdWallet’s series of user perspectives on 529 Plans.  The views and recommendations in this piece are held by the individual contributor and do not necessarily reflect the opinions of NerdWallet as a whole.

Indeed, Apple has been falling behind in its protection racket payments to Congress members: It reported only $9,000 in political contributions at the corporate level for 2012 – and that was only a grant to Cupertino-area schools serving the families of Apple headquarters employees.

Naturally, delinquency like that from a FORTUNE 500 company and the largest company in the world as measured by market capitalization is going to result in some Congressional scrutiny.

And so the heat is coming to Cupertino. The Democrat-led Senate Permanent Committee on Investigations is going after Apple for, apparently, complying with the law.

Background 

The United States currently has the highest statutory corporate tax rates in the developed world, with C-corporations paying up to 35 percent of their profits. Furthermore, any dividends paid to shareholders are subject to double-taxation; Corporations don’t get to deduct dividends paid to shareholders.

Naturally, other countries try to attract capital in a competitive global economy by offering a much more favorable tax environment. And U.S. corporations – acting generally rationally – respond to these incentives. Specifically, some of them station subsidiaries in Ireland, which has a top corporate income tax rate of 12 percent – and occasionally makes a better deal with some corporations, in exchange for their capital.

This, of course, helps their local economies: When a corporation deposits funds in an Irish bank, for example, the bank is able to then lend that money back out into the local economy several times over. The Irish use this to help fund ridiculous house prices in Galway.

This is an established part of the tax landscape in the United States. U.S. Corporations have a mountain of capital “parked” offshore. They’d love to bring it home, but as soon as they do, 35 percent of it disappears. It simply doesn’t make sense to repatriate this capital to a very sluggish U.S. growth rate and pay a punitive U.S. tax rate when they can keep it invested offshore, in economies with much faster growth rates (not you, Ireland!)

This occasionally results in some huffing and puffing from the very same members of Congress who wrote the U.S. tax code in the first place.

The Residency Question

According to the Senate committee, chaired by Michigan Democrat Carl Levin (with John McCain of Arizona as the ranking Republican), Apple’s practices go beyond simply parking assets in Ireland: The Senate report contends that Apple has actually gone as far as claiming that the assets in two of their subsidiaries are parked nowhere at all.

How does that work? Apple’s tax planners have discovered a quirk in the way the two countries define what corporations are subject to their tax codes. The U.S. asserts jurisdiction over any corporation formed within American borders; The Irish assert jurisdiction over funds and operations that take place within Ireland, regardless of where the company was formed.

Apple’s answer: Form a corporation in Ireland, but maintain bank accounts in the U.S. and hold board meetings in California. Voila! An instant tax orphan: The company does not fall under IRS jurisdiction because it’s an Irish company. It doesn’t fall under Irish jurisdiction because it doesn’t do anything in Ireland. This measure, according to Sen. Levin, allowed Apple’s subsidiaries, Apple Operations International, Apple Operations Europe and Apple Sales International to go years without filing a tax return in any jurisdiction, while shielding tens of billions of dollars from any kind of tax burden whatsoever.

Avoidance versus Evasion

The Senate report is extremely careful to use the term “avoidance” and its variations, rather than the terms “evade” or “evasion.” There is an important reason for this: Tax avoidance is perfectly legal. Indeed, it’s a fiduciary obligation of any CEO and CFO, acting on behalf of their shareholders, to minimize taxes paid out.

As far as we know, Apple has broken no U.S. laws in structuring its finances in this fashion. Even the Senate report concluded that what Apple was doing was not illegal.

That, however, did not stop Senator McCain from describing Apple as the country’s “most egregious offender,” among U.S. corporations seeking to minimize their tax liability.

Apple Bites Back

Apple isn’t taking the Senatorial assault lying down. CEO Tim Cook is testifying before the Senate Committee even as I write this. Apple’s prepared written testimony is here.

It its own defense, Apple points out that it employs tens of thousands of workers and pays billions of dollars annually into the Treasury – accounting for 1 of every 40 dollars in corporate income tax  the Treasury collected in 2012.

Amusingly, Apple’s vigorous counterattack is also not-so-subtly throwing some of its competitors under the bus. From Apple’s testimony:

Apple does not use tax gimmicks. Apple does not move its intellectual property into offshore tax havens and use it to sell products back into the US in order to avoid US tax; it does not use revolving loans from foreign subsidiaries to fund its domestic operations; it does not hold money on a Caribbean island; and it does not have a bank account in the Cayman Islands.

The dig on intellectual property is a direct slap at Microsoft and Starbucks. The bit on revolving loans is a shot at competitor Hewlett-Packard, as well as the politically-connected General Electric. And the smack on bank accounts in the Cayman Islands puts crosshairs on many prominent Congressional representatives, as well as Treasury Secretary Jacob Lew.

What is unclear, of course, is by what measure the straightforward jurisdiction-shifting of intellectual property and licensing to push profits to lower-tax countries count as “gimmicks,” while Apple’s own creative use of inter-jurisdictional arbitrage to create tax orphan entities do not.

This Congressional hearing, however, has nothing to do with reasoned or rational inquiry. It’s a kangaroo court – and the legal truth of the matter is quite irrelevant to the Senate’s aims. These hearings are a political exercise, not a policy-making inquiry. Apple is simply there to serve as a whipping boy for Congressmen to pound their podiums at for more money for the Treasury, for them to bestow favor on their most generous or supportive constituencies.

This explains the attempts at conflating tax avoidance with evasion, and with characterizing Apple as an “offender,” even when the committee’s own inquiry concluded that they acted within the law.

Read More From NerdWallet:

• The Best Online Brokers for Stock Trading
• Study: 81% of Americans Don’t Know How to Open an Online Brokerage Account
• How to be a Trader: Steps For New Investors

This submission is part of the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Anita Baekey

What a great ability-vehicle for saving and growing savings! As an 85-year-old senior, I just love the “ROTH WAY” to increase my savings. Once you make that initial deposit; paying tax on that amount at time of deposit; and wait five years before withdrawing any funds, all monies are TAX-FREE upon withdrawal!

Wait, it gets even better! You can contribute annual deposits up to allowable limits for single persons or couples; purchase stockes, stock options, even real estate to name a few vehicles, should you so desire. No matter how much you make on any such vehicle, you pay NO TAX UPON WITHDRAWAL!

The IRS treats a withdrawal made more than five years after the first tax year in which you made any contribution (including earnings) to your ROTH, as a qualified distribution, which means it is not taxable or subject to a penalty, as long as you are either 59-1/2 years of age; disabled; or making a first-time home purchase. You can even withdraw monies tax-free during the five-year holding period, under certain conditions.

Another bonus: You are not required to make any withdrawals during youur lifetime, even after 70 1/2, as in a Traditional IRA. However, once you’ve reached age 59 1/2, you may take qualified distributions from your ROTH IRA, as long as you’ve held the IRA for at least five years.

Should you wish, you can do a ROTH conversion from your other IRA”s – i.e. Traditional/Sep/Simple, as well as from your 401(k) savings. Whether thhis strategy works for you depends on your financial situation and personal goals.

THERE IS A DOWNSIDE TO OPENING A ROTH – YOU CANNOT OPEN ONE IF YOU’RE TOO RICH! Eligibility requirements change every year, but for 2013, you can only open a ROTH IRA if your AGI (adjusted gross income) is less than $127,000 (individual) or $188.000 (couples). Here’s an upside to not being rich!

So age and adjusted gross income will determine if a ROTH IRA is good for you. All I know is, it’s great for me – I can make as much money as I like, from my investments; may contribute to it annually; and the withdrawals are all TAX-FREE!

WHERE CAN YOU GET A BETTER SAVINGS VEHICLE THAN THAT?

This submission won first place in the NerdWallet 2013 Roth IRA writing contest. The views and recommendations presented in this piece are held by the individual contest participant and do not represent those of NerdWallet.

By Stephanie Halligan

Check me out: college grad with a kick-ass degree

Trading in those exams for a nice salary.

I’ve got my first job, and it’s paying the rent.

When I get this month’s check, just as quickly it’s spent.

It’s a YOLO-type life, I just live for today

But there’s a voice in my head that just won’t go away.

“If I spend all my money while I earn a good wage,

What will happen to me at retirement age?”

So not wanting to grow old and in poverty

I decide to start saving for that “future me.”

I research an account, a retirement plan

And there’s more account types than I could possibly scan.

There’s 403(b)s and 401(k)s

And Individual Retirement Arrangements (IRAs).

But one catches my eye, and I hear myself say,

“Just what in the heck is a Roth IRA?”

It’s a retirement plan, but compared to the rest

It has special features that make it the best.

Yes, it’s made for retirement and still involves stocks

But it’s different in ways, and I see why it rocks:

You can withdraw your money whenever you choose

For a house or more college – you really can’t loose.

The withdrawals on your contributions all come tax-free;

You can take money out without penalty.

It’s easy to open at any ol’ age

(Just make sure that you’re earning some kind of wage).

As long as you bring home the bacon (or cash)

A Roth can serve as your retirement stash.

More than anything else, if you’re early career

The Roth IRA benefits seem quite clear.

Your money is taxed before it goes in

At rates that are low, where your tax bracket begins.

Your salary will grow when you’re older and gray

Which means that you pay less on taxes today.

Paying taxes right now is the best strategy

And later your money will come out tax-free.

In conclusion, if the choice wasn’t already clear,

You can contribute up to fifty-five hundred per year,

Which means if you start in your twenties today,

You’ll have over a million on retirement day!

For a youngin’ like me who’s just starting to work

A Roth IRA has the combo of perks

That make sense for me now and make sense for me later

And will make life as an old fart all the greater.

So if you’re thinking of how to put money away,

Don’t hesitate long: pick a Roth IRA!