Distributions

• Distributions from a 529 plan are tax-free if used for qualified higher education expenses. This includes room and board, mandatory fees, tuition and books and computers, if required. Rules for Roth distributions are a bit more complicated. As contributions to a Roth are always made on an after-tax basis, you are free to withdraw any of your Roth contributions at any time, for any purpose, without having to pay tax on them. However, if you withdraw earnings from your Roth they are generally taxable if taken within five years of opening your account. While you can use these earnings to pay for college, you will have to pay tax on them. Additionally, earnings distributions before you reach age 59 1/2 are usually subject to a 10 percent penalty. However, you can avoid this additional penalty if you use the funds for qualifying higher education expenses.
  
  

Deductibility of Contributions

• Unlike with other IRAs, contributions to a Roth IRA are not federally tax-deductible. Similarly, contributions to a 529 plan are also not federally deductible. Neither plan will help you save on your federal taxes when you make a contribution intended for college savings. However, 529 plans may offer you certain state tax advantages that Roth IRAs cannot, such as an upfront deduction.
  
  

Contribution Limits

• The contribution limits for 529 plans vary from state to state. Overall, you can generally contribute much more to a 529 plan than you can to a Roth IRA. For example, many state plans allow you to contribute over $300,000 to an individual 529 plan, while the contribution limit for a Roth IRA is generally $5,000.
  
  

Growth of Assets

• Both 529 plans and Roth IRAs share the advantage of tax-deferred growth of investments. If you take qualifying distributions from both accounts, then your assets actually grow tax-free. In either case, you do not pay tax on your earnings as your assets grow.