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Subject:  Roth earnings taxed when used for college? Date:  3/21/1998  2:01 AM
Author:  orangeblood Number:  2287 of 88051

Pixy and other experts,

A question has arisen on another board on whether Roth IRA earnings would be taxed if used to pay for college. The confusion started because of a story on NBC news.

Someone asked TMFTaxes, who replied:

>>>>>Yes, there will certainly be tax associated with the distribution.

Since the distribution is make prior to age 59 1/2, it will be treated as a non-qualifed distribution....subject to tax.

I would love to have heard the NBC report to see what they were really driving at. But there are no provisions that I can find that would exempt the earnings from tax.<<<<

I replied that I *still* think it is a qualified distribution if it used to pay for college or your first home.

Here's another way to look at it: Under the new tax laws, either a Roth or a "regular" IRA can now be tapped to pay for college or first homes, right? Now, the regular IRA earnings will be taxed upon withdrawal, whether paying for college or taken after 59 1/2. So, no extra penalty either way. Therefore it doesn't make sense to me that Roth earnings would be taxed to pay for college, but not after 59 1/2. That's adding an extra penalty for tapping a Roth for college, but no extra penalty for tapping a regular IRA.

Pixy, what say ye?


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