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|Subject: Re: IRA withdrawal for college costs||Date: 5/5/2012 12:32 AM|
|Author: aj485||Number: 305121 of 311352|
I have a $40K IRA set up to pay off sons student loans. Loans currently at 7.3%. Should I take IRA out (without penalty for ed expenses) or hold IRA which made 11% last year.
Would you be asking this question if your IRA had lost 11% last year?
Investing funds that you intend to use to pay off debt in the short term is using margin, with a risk of loss.
If I withdraw, should I have them withhold taxes up front, or save $ between now and Apr '13 to pay additional taxes? Any suggestions appreciated
My advice would be that you need to consult a tax professional.
According to IRS Pub 590 and IRS Pub 970, withdrawals from an IRA to pay for education are only penalty-free if they are made in the year that the qualified higher education expenses are incurred. Qualified expenses include tuition, books, fees, supplies and equipment, and if at least a half time student, room and board. Notice that student loans are not in the list of qualified education expenses.
Getting a student loan to pay for qualified education expenses does not prevent you from waiving the penalty. However, since student loans taken out in past years were used to pay for expenses in past years, not the year of the withdrawal, and student loans are not qualified expenses, you are not allowed waive the penalties for paying off student loans with an IRA withdrawal, IMO.
- not a tax professional
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