<p>I'm thinking putting some the money I made over the summer in a Roth IRA. I was wondering if I can withdraw from it to pay off student loans once I graduate and claim it as an educational expense?</p>
<p>Edit: Been reading as seems like loan repayment isn't a QHEE. Darn....</p>
<p>No. Tax benefits for education, other than interest on education loans, generally have to be taken in the year the education expense occurs. Paying off a loan does not qualify.</p>
<p>Considering that the early withdrawal penalty on a Roth is 10% on the growth within the account, and there is no penalty on withdrawing principal from a Roth regardless of purpose; I’d say it’s a workable plan.</p>
<p>As scottaa said, you can withdraw the amount you originally put in, but any growth would be taxed and penalized if removed. Your idea is OK in theory, but if you have other options to pay off your loan when the time comes, you should seriously consider those before withdrawing $$ from your Roth, as you can’t backfill contributions for years you missed or for money subsequently taken out. The Roth is a gift from the government to early career earners, and you should utilize the tax-free growth and the time value of compounding as much as you are able.</p>
<p>Well to elaborate on my situation, I’m a junior and have no student debt as of now (I took out $2000 for student loans, but don’t intend to use till next year). That said, I’d like to put the money I made for summer, around $1500, which I have already used for rent, in a Roth (e.g.$1500 of the loan money would go in Roth). I see the benefit as I don’t have to report this on my FAFSA, it’s great investment for the future, and I can pull it out in case of an emergency. Unless I get a summer stipend, this will probably be only chance to contribute to a Roth until I graduate and get a job (I may go on to grad school, and in that case I could still take out money if need be). Do you think it’s wise to invest my earnings now and incur a bit more student debt or have all my earnings liquid for next year?</p>
<p>Any thoughts?</p>
<p>My son is a junior in college and looking at opening a Roth as well. He wants to put about $2000 of his earned summer earnings in a Roth this year rather than have it sit in savings and have it hurt his financial aid eligibility for senior year. He’s also looking at Grad school and is aware that he can take out principal if he needs it to pay grad school expenses if he needs to. He understands, principal and interest can only be taken out in five years time and will leave it untouched if he doesn’t have to tap it.<br>
Since a Roth doesn’t have to be reported as an asset on FAFSA, in theory, having one should not lower-- his financial aid eligibility for his senior year or beyond.</p>
<p>But I do have a concern. Realistically, if he goes to Grad school, he might come up short on funds to pay rent or other living expenses. However, everything I’ve read says that if he does need to tap the Roth (for principal only) then that withdrawal would have to be reported as income on the next year’s FAFSA and would impact his grad school eligibility. Am I correct here? Any thoughts?</p>
<p>Priorityk - Would you have to report the withdraw as income? It was already reported as income the year it was earned and put into the Roth, correct?</p>
<p>I am wondering if anyone has an answer to this last question? This is exactly the situation that we are facing right now. One twist on ours is that the contribution AND the withdrawal were both in the same year. Would that not negate the deposit to start with so to speak? She did get a tax form, I belive some version of the 1099 form.</p>
<p>Thanks,</p>
<p>Dan</p>
<p>Also interested. And another related question…</p>
<p>I thought that money someone puts into retirement accounts needed to be reported in the year in which it was put in (although money already in there would not be considered.) But is that only for pre-tax income, like a 401K or IRA, rather than a Roth IRA (since Roth IRA is not pretax?)</p>
<p>Also, are FAFSA and Profile the same for this? </p>
<p>Does the money in a Roth IRA have to be reported on Profile?</p>