529 lower chances for college financial aid
My oldest is 5 years old. No 529 plan as I heard that it reduces financial aid. Was thinking that can use Roth IRA principal for children's college education as we can withdraw that without penalty. Is this a good plan? Or should I contribute to 529 even though it reduces financial aid.
First of all, merit-based scholarships don't take income/wealth/529s into account. Second, For income based scholarships, you are more than likely in a bracket high enough to not be considered for it. Finally, even if what you heard is true (it's not), It's a silly idea to not leverage a solid instrument to save for college in the hope that eventually your kid might qualify for financial aid. So, first thing tomorrow, start funding the 529.
Any 529 will be absorbed directly into to schools balance sheet. However your kids will likely not qualify if you have a high paying job and assets. Then the question is how will you save up enough for each kid to pay the sticker price before they turn 18. A 529 can be a small part of that.
Why do folks suggest adding to 529, when that money can be used only for education. Instead why not diversify and build money that could be used for general purpose ?
Tax benefits
Depends. If you trust the grandparents to be custodian of 529 it isn't counted as an asset and is counted as the kids income when given to them, this counts against them very little for scholarship. You can also give up the kid for adoption to a poor family when they are 17. Just give them some money and let them take the tax credit. Also in my state if a kid spends a single day in foster care they get free tuition. Foster can even be extended family.
Financial aid in the form of loans or free money? I'm pretty sure everyone is eligible for the full loan amount regardless of income or assets. As for the latter, you with in tech so your income will automatically DQ your kid from free money in the form of financial aid.