<p>Does anyone know the details of using early withdrawals of IRA/401k funds to pay for college? I understand that college costs for you or your children are allowable w/o a penalty. But what kind of college costs? There are direct and indirect costs.</p>
<p>Also, does anyone know the rules of WHEN and HOW the costs are to be paid with these funds in order to preserve a proper tie-in with the ira moneis and the appropriate college costs? For example, Can you take money out now (this is when one fund matures), but pay for the spring trimester next year with it next year? Or do we have to pay for everything in advance?</p>
<p>The pages relating to IRAs start page 58. I think the education costs have to be in the same year as the IRA withdrawal (it is the same for most of the education tax benefits). nd the qualified education expenses are limited to</p>
<p>thanks. it looks like tuition fees, books are allowable costs.</p>
<p>so I might have to only withdraw the expenses through 12-31 of this yr?</p>
<p>quote–
I think the education costs have to be in the same year as the IRA withdrawal (it is the same for most of the education tax benefits)</p>
<p>Last yr, for taxes, I recvd a 1090something from the college indicating the amount of tuition and fees that cd be used to claim that deduction - I forget the name of the deduction. </p>
<p>Was that number only thru 12-31-08 or was it for the whole school yr? </p>
<p>I assume this 1090somthing form is the same one every college student’s family receives.</p>
<p>on the tax on the distribution comment, this is another question I have: how much of the ira withdrawal is taxable? Only the interest, which was tax differed?</p>
<p>This will determine how much I take out. We need, for example, $11,500, for tuition , fees, and books.</p>
<p>How much should we withdrawal if we need $11,500? Do we withdrawal $11,500? But as the poster reminded us, some or all of that will be taxed, thus reducing the amt available to us for school. So how would we determine how much to withdrawal?</p>
<p>You will need to check against your own records. The 2 schools we have experience of report only the expenses/scholarships from the calendar year. I have heard that some schools will include the following spring semester also, making figuring all the taxes somewhat more complicated. There is a rule for some of the tax benefits (including the Hope tax credit) where payments in the current tax year for qualified education expenses for academic periods starting in the 1st 3 months of the subsequent year can be claimed in the current year.</p>
<p>So reporting that number might vary by college and is not standard? I can try to find that 1098 and read the fine print and also ask the college for clarification.</p>
<p>I recall the number, $20k ish, and that seemed to be a for a full yr as it equaled our EFC.</p>
<p>Are there CCer 's who actually did a withdrawal from an IRA to pay for college and then went through the tax forms the next year ?</p>
<p>It wont 't necessarily relate to your EFC. The form usually shows the full tuition/fees paid during the year and any scholarships/grants. You have to figure out what amount of the tuition is eligible for tax benefits as the form will not include all the relevant data. For instance if you have loans as part of the financial aid package, expenses paid with those loans are still eligible for the tax credits.</p>
<p>Re how much of what you withdraw will go to taxes- I am not a tax expert but just asked our accountant about the same thing. His answer was this;
The money in your IRA was not taxed when you earned it, it is taxed as income when you take it out of the IRA. So, whatever income tax rate you are at is what it will be taxed at. For example, if your family is taxed at 30%, and you withdraw $10,000, $3,000 of it will go to the government, no matter what school you go to.</p>
<p>I would think, but I am not a tax expert for sure, that the govt should only tax items 1 and 3 above since they were never taxed.</p>
<p>and, In this context , if everything in the ira is composed of 1 and 3, and we needed 11,500, and we are in the 30 pct bracket , then we wd need to take out …</p>
<p>I am no expert on IRAs/401ks but… Regular IRAs the money is not taxed before contribution so should all be taxable when it is taken out. For Roth IRAs the contribution is taxed before the contribution so there should be no tax liability when it is taken out. There may be accounts with a combination of post and pretax $$s (ours are all taxable but I think our 401k did have an option to contribute post tax dollars as our 1099 for our 401k withdrawals shows a line for untaxable withdrawals - it is always blank though :(). You would have to check your particular accounts. </p>
<p>If your account contains money that is fully taxable on withdrawal and your rate is 30%, then to net $11,500 then you would need to withdraw $16,429.</p>
<p>Assuming that the OPs are eligible to borrow the funds through PLUS loans, why withdraw money from retirement accounts at all, particularly with the added burden of having to pay taxes on the withdrawal and the lost opportunity of investment growth on the funds withdrawn? The interest rate on PLUS loans is relatively low, the interest may be tax deductible depending on the OPs’ income level, and repayment of the loan can be made on very extended terms.</p>
<p>OP- are you talking about an IRA or 401 K? It makes a big difference.
Yes, IRA’s comprise pretax contributions and interest, but post tax contributions should go into a savings account, not an IRA.</p>
<p>quote–
why withdraw money from retirement accounts at all</p>
<p>–Lost my job as the primary breadwinner in the great recession of 08, so I assume that Plus loans are not a viable option. For my info, where does one find and apply for these? Please correct my understanding on Plus Loans if wrong: </p>
<p>I assume that one has to pay back the principle now ( and not after the kid is done being a F T student);</p>
<p>I assume that it will be very unlikely to give an unemployed person a loan of any sort. spouse makes around 18k; have house payments etc.</p>
<p>I was asking this time about an IRA and not a 401k. However, I am interested in learning about a 401k, too, since that would be my next fund that I might go after - in a couple of yrs, depending on how the job hunt works out. The IRA in question earned $400 dollars on $20,000 this year. The 401k is earning 10 pct even now, so I definitely do not want to touch this - if possible.</p>
<p>We are trying to figure out whether the contributions were already taxed. After my wife left her job a long time ago, she recvd a check from the company and she put it into this IRA at the local bank. She is not sure what the source of this check was (maybe a lump sum distribution from a company paid pension?). We looked at the tax form for the yr it wd have been reported and we saw not one jot of this on the tax form - which wsa professionally prepared, btw. I wonder if this means that it was all pre tax, maybe the professional tax preparer was told that the money was going to be rolled over into a qualified retirement acct (the IRA) and so chose not to report it.</p>
<p>If this is so, then I sd assume that the FULL amount of the distribution will be taxable this yr. I dropped to a lower taxbracket this yr at least.</p>
<p>If your tax rate is 15% then to net $11500 you would have to withdraw $13,530. I think when you withdraw from a non Roth IRA the company must automatically withhold federal taxes of 10% of the amount you withdraw (unless it is part of a regularly scheduled withdrawal which this wont be). You can elect for a higher % to be withheld. If you leave it at 10% the amount to net $11,500 would be $12,778. Don’t forget you may owe State taxes down the road (depending on your State of course). Please check all this with your IRA holder as I am not an expert on this - just speaking from some personal experience.</p>
<p>As far as other options are concerned. Has your student taken any Stafford loans? These could be a viable option and would reduce the amount you would have to take out of your IRA. All students (assuming you are US citizens or permanent residents) are eligible for $5500 in Stafford loans their freshman year and it goes up a little each year. There is no credit check or cosigner required. If you wish and are able you can always help pay them off later. As far as PLUS loans are concerned there are credit checks but you may still be eligible. If you apply and are denied then the student is eligible for an additional $4000 in Stafford loans.</p>
<p>For unsubsidized Stafford loans only the interest is due at this point - repayment of the capital is not due until graduation/dropping below 1/2 time plus a 6 month grace period. The interest can be deferred until repayment is due. Not something I would generally advise as the interest is added to the capital and you pay interest on the interest. But you are between a rock and a hard place right now.</p>
<p>Have you talked to the school about your situation? They may be willing to adjust your financial aid depending on how long you have been out of work. If not they should be able to give you advice on the federal loans that may be available.</p>
<p>Another thought - if you have been out of work all of 2009 and your (you and your wife) total 2009 income is below $30,000 (may change a little but new rules aren’t out yet) and you meet other requirements then you may be eligible for the automatic 0 EFC for the next school year. If you do decide to make this withdrawal then remember it is considered income for FAFSA purposes so may bump your income up over the $30k required for the automatic 0 EFC. If that is the case then watch your timing on withdrawing the funds. If taking the money out of the IRA in early January stops your 2009 AGI from going over $30k then try and do that if possible - being eligible for the automatic 0 EFC will make your daughter eligible for a Pell grant in 2010-2011 and possibly other grants.
Good luck.</p>
<p>thanks, all for the input. I have applied for special circumstances at the college and the adjustment was:. They gave our kid some more loans (1.6k more loans. She now has 4500 in stafford sub and 2k in stafford unsub, and 3k in perkins) and an extra 5k in grants. When you are w/o income, even $80 in interest is - seems like - a ton of money. </p>
<p>It still leaves $11,500 in tuition , books, fees for the yr. So we’re back to paying for college now on our future retirement later (we’ll get by).</p>
<p>Can someone tell me where the automatic EFC 0 slot is on the FAFSA? </p>
<p>Doesnt FAFSA always look back on the previous tax yr and last yr was our best yr since we had a lump sum 1 yr severance on top of the quarter yr that I had worked. To FAFSA, we were richer than we really were. THus special circumstances forms are made AT THE COLLEGE (not FAFSA).</p>
<p>amendment: “an extra 5k in grants”, including 3k pell.</p>
<p>quote–
If you apply and are denied then the student is eligible for an additional $4000 in Stafford loans.</p>
<p>wd that be stafford unsub or subsidized loans?</p>
<p>on the 30k threshold, is that 30k AGI or taxable income? I think we migth be in the 40k ish AGI area at the end of 09, depending on whether I get the fry cook job or the systems analyst job.</p>
<p>very interesting stuff on the timing. Two things are prompting the ira w/drawal and the questions on same: 1) the ira cd maturity dt is now (last day is today) ; 2) first term college is due on 8-15 of $3,620. the sev fund is getting pretty down and 3620 is probably not at all a good thing to spend our last living dollars on.</p>