Where to get the money? Financial advice needed!

Paying for College
1

<p>We need to make up about 15K per year as the difference between the what the college says we can afford and what money we can actually scrape together between income, savings and frugality. Would you choose to get this "extra" tuition money from loans, from 401K withdrawl, or ceasing 401K contributions for 4 or 5 years? We are in our late forties.</p>

<p>I looked at Publication 17, but I am not certain if money withdrawn from the 401K would be taxable or if it would be assessed the 10% penalty.</p>

<p>What is the Hope Grant?</p>

<p>Thanks!</p>

2

<p>Your equation has too many variables in it to be solved without more information, information that you probably don't need to share here. </p>

<p>Such as, what is your current net worth, what other sources of retirement income you expect besides the 401k, when you want to retire, and what level of income you need/want in retirement. In my other life (from CC) I hang out at Early Retirement boards, example:
<a href="http://www.early-retirement.org/cgi-bin/yabb/YaBB.pl%5B/url%5D"&gt;http://www.early-retirement.org/cgi-bin/yabb/YaBB.pl&lt;/a> People there could help you with your dilemma.</p>

3

<p>Thanks dt123...I'll look there.</p>

<p>We really wouldn't mind taking some from the 401K, but are confused about whether or not it is (a) taxed and (b) penalized. It would make a big difference. I thought for sure that money withdrawn for college was not subject to the 10% early withdrawl penalty. But, my hubby thinks it is. Anybody know for sure?</p>

4

<p>You 401 K may let you take a hardship withdrawl (college education is one of those conditions). However, check for the terms as it will usually be a 20% withdrawl penalty and the money becomes taxable income. My company's plan is follows (I think that it is pretty standard)</p>

<p>You must pay income tax on your hardship withdrawal. In most cases, you will also be liable for an additional 10% tax on this amount. This additional 10% tax does not apply if you are age 59-1/2 or
older, or if one of the exceptions listed in the list in the Tax Issues section applies.</p>

<p>To pay federal and state taxes or penalties reasonably anticipated to result from the withdrawal, you may increase your financial hardship withdrawal up to 125% of the amount you need, if the funds
are available.</p>

<p>If you make a hardship withdrawal, you will be suspended from making any contributions to the
401(k) Savings Plan for a period of six months.</p>

<p>Tax issues surrounding receipt of your benefit, especially if you’re considering a lump-sum distribution, can be complicated and are subject to change. No one at the Company can provide you
with tax advice. Company recommends that you consult with a tax advisor before you make your payment decision.</p>

<p>Mandatory Withholding
When any portion of your distribution is paid directly to you in a lump sum distribution that is taxable, from the 401(k) Savings Plan, Retirement Income Guarantee Plan (RIGP), Employee Stock
Ownership Plan (ESOP), or other qualified retirement plan, any amounts that have not previously been taxed are subject to 20% federal income tax withholding.</p>

<p>These distributions may include:
[ul]
• Before-tax contributions
• Deferred profit sharing
• Company match
• Investment results on all savings, including earnings on after-tax savings
• Benefit value payable from RIGP
• Stock value payable for the ESOP.
[/ul]</p>

<p>Mandatory withholding applies to any portion of your payment that is not attributable to after-tax contributions and is made directly to you rather than to the trustee of another plan or Individual Retirement Account (IRA) in a direct rollover.</p>

<p>I suggest that you see if you 401K allows you to borrow the money from your self. (you will usually pay it back at a low interst rate-1% above the prime) I know hte company that I work for allows you 54 months to repay and the loan amount is paid through payroll deductions. Ohters will let you make payments quarterly. Check your benefits and choose the option that is best for you.</p>

5

<p>Why not take a loan from the 401k to pay the tutition don't think there are taxes or penalties involved in that case but you must pay back the loan before you can retire I think (no expert on this stuff)</p>

6

<p>Do you have home equity? If so borrowing from that is a good move as it will reduce your EFC the subsequent year (if you are in a Profile school). I do not recommend breaking into the 401K, because though the money in there is not counted as assets on the FAFSA any withdrawal is considered income from other sources and heavily assessed the subsequent year. A loan would be a better way to go. Or check out the PLUS loans. A combination of home equity loans and Plus loans and temporarily ceasing the 401K contributions is the most efficent way for most people. THe PLUS loan can be taken retroactively to pay back some 401K money if it becomes ornerous to repay money borrowed from it.</p>

7

<p>Thanks for the advice...I appreciate the input!
Another question occurred to me: Could our student take an unsubsidized Stafford loan, even if it is not on the financial aid award letter?</p>

8

<p>Some seem to be overlooking what I personally consider the #1 first step- if your family is 15k short, first look at what the student will contribute, then the family looks at whats left. Maybe the student goes in debt for half and you for half. </p>

<p>I'm all for parent chipping in for childs ed(we are), but My wife and I believe for a student to get the most from it, he must appreciate the value of it, and we feel his paying part of cost is best way to do that. Too many students drop out, often with poor grades, and they're not dummies.</p>

<p>After graduation a parent can always surprise a grad with the gift of cash, or payment on his loan if they want to do more, but make the kid think its his bill while he's in there.</p>