Impact of IRA withdrawal on Financial Aid

Paying for College
1

<p>We've opted to access our IRA to fund son's college education. IRA withdrawals for higher education are not subject to early withdrawal penalties, but they are a taxable event. Son just finished first year at one of the high cost universities. For his first year, the university offered financial aid that covered about 1/4 of the cost. The award offer for the second year though went to virtually zero. Based on the fact that the IRA withdrawal showed up as an increase in the AGI on the 1040. Outside of the IRA withdrawal, there were no other changes to our family income. </p>

<p>Can any of you share your experiences on the impact of a financial aid award if you've financed the balance of the cost with an IRA withdrawal.</p>

<p>Thank you for your inputs.</p>

2

<p>The IRA withdrawal will show as income in the FAFSA calculations, so it will reduce your potential aid somewhat. Use the FinAid calculator to try various scenarios and see what impact it has-- it really depends on your income level.</p>

<p>Here's a good summary:</p>

<p><a href="http://www.finaid.org/savings/retirementplans.phtml%5B/url%5D"&gt;http://www.finaid.org/savings/retirementplans.phtml&lt;/a&gt;&lt;/p>

3

<p>Borrowing from an IRA was a big mistake. In the future opt for a signature loan for your son. You can always pay it back later, but the money from your IRA is history!</p>

4

<p>Borrow from your 401K is better than IRA withdrawal because it affects next year financial aid. I assume it's not Roth IRA.</p>