Using retirement funds or mortgage money for college

Paying for College
1

<p>Hello All,</p>

<p>To pay for college expenses, we have a dilemna. Not that I'd really want to but our choice is to either refinance our mortgage to pull out cash or use my 401K. I'm 58-1/2 so I would only have to wait for a year to avoid penalties. In the case of refinancing, it simply trades equity for cash and we would use it/gift it so fast, I'd still only end up with $40K in available assets in 2009 or 2010.</p>

<p>Let me back up a bit. As far as I've read the contribution to your retirement account is added back in to your income by FAFSA and CSS methodologies in the determination of EFC as it's "available" for payment of college expenses. I believe this to be true insofar as the college where my boy goes (which has me complete the FAFSA and CSS Profile ) also has an 8-1/2 x 11 "Continuing Student Financial Aid Application" where among other things they ask for "Other Income" where you are to delineate what your 401K or other deferred retirement contribution for the year is.</p>

<p>Question I have is: If they added the "Other" income back in when it's been properly deferred, when I start utilizing this fund and it becomes "Income", doesn't that mean they've counted it twice; once in the year of deferrment and again in the year of income? I hope you understand this and can offer your guidance.</p>

<p>Thankyou,</p>

<p>Oleseahorse</p>

2

<p>We used the equity in our home. Our rationale was that we could always pay loans back WITH our retirement income...but if we purge that retirement income, we just won't have it. I believe the conventional wisdom is that you should leave your retirement account alone. You might want to stop or reduce contributions to it and use that money for college costs...but if it were me (and it is...), I would not take money out of my retirement account even without penalty.</p>

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<p><a href="http://www.irs.gov/pub/irs-pdf/p970.pdf%5B/url%5D"&gt;http://www.irs.gov/pub/irs-pdf/p970.pdf&lt;/a&gt;&lt;/p>

<p>check out page 58. The rules for 401K to pay for college is there. There may not be a penalty, just income tax on the distribution.</p>

<p>Also, some of your assets are protected. If you are married, your full 40K may be 'protected assets' and not assessed by fafsa</p>