20% Tax Credit and 1.5% fees, or no tax credit and lower fees.?

Question

All,

I am comparing two investments. Both are taxable when invested and all earnings are tax-free when withdrawn (it's a Roth IRA vs. a 529 plan).

The 529 plan offers a 20% state tax credit which the Roth IRA does not. However, the investment options are constrained, and the funds I would be forced to invest in have annual management fees of 1 - 1.5% per year.

My Roth IRA investments have much lower fees, about .5% per year on average.

Given an investment horizon of 13 years, which wins, taking the 20% tax credit and suffering the higher fees, or forgoing the credit and paying higher fees?

-->Adam

The money is not taxable when withdrawn in either case.

Answer 1

Your tax credit 20%, doesn't tell me much right at the present. The savings or comparisons would depend on your income at the time of withdraws.

You may get a more informed opinion from the investment counselers with whom you are consulting and giving some idea or estimate based on future income, 13 years out..