Ask Terry Questions Using IRA’s to pay for college tuition

Using IRA’s to pay for college tuition

By Terry Savage on December 18, 2014 | Financial Planning / Retirement

Hi Terry:
I need to use some of my IRA money to pay my children’s tuition. Is there any advantage to using ROTH IRA funds vs. regular IRA funds?

Terry Says:  Gosh I hate to see you do that!  Will your educated children be willing to pay for YOUR retirement?!!   You’re probably considering using this money because of the tax break allowed on withdrawals from either type of IRA to pay for qualified college expenses.  You still have to pay ordinary income taxes on the withdrawal from a traditional IRA, but you don’t have to pay the 10 percent tax penalty.   With a withdrawal from a Roth, the portion that is earnings becomes taxable if you withdraw before age 58-1/2.  Here’s a link to an article at that explains the rules in detail.

I suppose if I had to make the choice, I’d withdraw from the traditional. But I think that having your children live at home for two years and attend community college will significantly lower your college expenses — and allow your IRA money (all of it) to continue growing for its intended purpose!  Unless you have great kids who will let you live with them for free in your old age and help raise your grandchildren, eventually!

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