<p>No penalties-- H is over 59.5 -- if he withdraws IRA to buy a house (we are getting divorced), will this be ordinary income and as such impact the EFC. Our EFC now is in the low 20s. If he takes out $100k and dumps it directly into home equity- it's still going to push up the income right?
Is there a way to describe unusual circumstances so that the EFC is NOT impacted by the distribution of IRA funds?</p>
<p>Both S and D's school require non-custodial parent income info. Not even sure what "custodial" even means once they are both in college and legal adults. Terms of divorce require joint contributions towards the EFC.</p>
<p>I believe that withdrawals from the IRA will be viewed as taxable income if they have not been taxed in the past…regardless of your husband’s age. He will not have to pay a penalty for early withdrawal of the funds…but they will be taxable unearned income. So yes…if he withdraws $100K from that account, I believe that will be impact your need based aid award.</p>
<p>Someone else can correct me…the thing about being 59 plus years old applies to a penalty for early withdrawal of the funds…it does NOT exempt him from paying tax on previously pretax IRA monies.</p>
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<p>The colleges won’t care much about your divorce decree. But I have to say…this sounds very vague to me. How much does this mean you will each pay? If your kids get no need based aid, will you each be required to pay 1/2 of the costs.</p>
<p>Distributions from the IRA will count as part of adjusted gross income. If over 59 1/2 it shows as pension/retirment but under 59 1/2 counts as earned income (for calculations re: earned income credit). Regardless, it is a very bad idea to withdraw the funds while student is in college.</p>
<p>School meets unmet need-- so we have a rough idea of EFC patterns and our upside liabilities to each of us. But thanks for your inputs on the divorce agreement.</p>
<p>Sounds like he’s better with a mortgage until kids out of college rather than cashing in IRA as this would tick up the income-- so high that our EFC would approach $50 and there would be no aid.</p>
<p>It sounds like you might be right about doing the mortgage until they are done, especially with the current low rates on loans. IF your kids are at a particular school, or know where they are going, you might also check with their FA office to see if they can make an ‘adjustment’ for you. We did this with our daughter’s #2 choice, a Private that also required CSS etc… due to a large ‘gift’ that my wife’s elderly mother made to her (although we also are her (grandma) only source of support other that SSI and provide over 50% of her income). They were very willing to consider this and adjusted the grant/loan portion (they provided 100% of need, but lots of loans) by about 10K. Worth asking about.</p>
<p>djd</p>