Can I use my IRA to pay my kids college without tax penalty?

Question

Can I use my IRA to pay my kids college without tax penalty?

Answer 1

You can take a distribution from an IRA to pay for qualified higher education expenses. Such a distribution is subject to income tax upon distribution, however there is a specific exemption from the 10% early withdrawal penalty for this.

Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for enrollment or attendance of the individual or your child at an eligible institution. If they are at least a half-time student the education expenses would also include room and board at the school's posted rate for students living on campus or up $2,500 if they are living off campus.

This exception only applies to IRA accounts. You could not do this from an employer plan such as a 401k plan.

Answer 2

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Answer 3

I know you want to help out your kid(s), but I don't recommend using your IRA to do so. In the long run they'll end up having to support you if you don't have a secure retirement.



I agree with the above poster.

Answer 4

In short. No.

A 529 plan would have paid for college without tax penalty.

If you have a ROTH IRA, you can take out however much money you put in 100% tax free. I'd highly recommend against it though...let your ROTH grow tax free because someone will always be there to lend your child money for college, noone is going to lend you money for retirement. I'm 24 and am currently paying off 2 years worth of college loans. (my father paid for the first two years) And while I am greatly thankful for him covering the first 2 years, I'm glad he didn't sacrafice his/my mothers retirement just to keep me from spending $543/mth on my college loan. I'm learning a valuable lesson about hard work and I would have most likely just spent all the money on chinese takeout/pizza anyhow.

Answer 5

It depends on the type of IRA.



I do not believe you can do this with a traditional IRA.



I believe you can with a ROTH IRA.



celia

Answer 6

If it's a traditional IRA and you're under age 59-1/2, then you'd have to pay income tax at your normal rate, plus a 10% penalty, on any money withdrawn.

Answer 7

If you have a traditional IRA, then any money you take out, will be taxed and penalized 10%



If you have a Roth IRA... In that case, you have already paid the taxes on your original money you invested. So, that part of the money can be taken out and used for any purpose, anytime (including your kids education).



So, say you had put 10,000 in traditional IRA and now that money has grown to $14,000. You can not take any money out of this without tax and penalty



But say you had put same 10,000 in ROTH IRA which has grown to $14,000. Now since this is roth, you can take $10,000 anytime.. you will pay no tax and no penalty. But if you take out the growth portion which is $4000 in this example, then you will have to pay tax and 10% penalty for that.



That said, I will never advice you to take out money from your IRA. IRA is for retirement. You can always get loan to finance your kids education now. But you will never be able to get a loan to finance your retirement.



Also, my personal opinion is that if you take a loan for your kids education, you can ask him/her to pay it in future. This will make your kid spend responsibly when he or she starts earning. But lets say you take money out of your IRA and pay the entire college bill. Your kid comes out of college with no loan.. then whatever he or she earns is going to be spend.. My personal opinion though ! I am saving a lot for my daughters eduction in a 529



All the best.

Answer 8

Nope. You're looking at at least a 30 percent hit.