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I would like to use the nondeductible portion of my IRA ($18K) to pay for my sons tuition. I understand that there would be no penalty for that use but how it is separated / calculated (please show figures)if my deductible portion CONTRIBUTIONS are $13K. The total present value is approx. $130K. What is the tax consequence if I use $18K? Or where do I find the answer of how to calculate it - what IRS publication?

I'm not a tax expert, but I am fairly sure of the stuff that's in bold below.

You need to go to www.irs.gov and download at least these two items:

• IRS Publication 590

• Form 8606


Here's where I'm going out on a limb -- don't depend on the following -- you should read the IRS Pub. & try to fill out the form and make your own conclusions -- and someone who knows the rules will be along before too long to give you better guidance.

I think that you cannot just withdraw the $18,000 that represents the non-deductible contributions you have made to your IRA(s).

If you need to pay $18,000 for "tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution," I think you will need to withdraw something like $24,000, if you are in the 28% bracket. You shouldn't be subject to the 10% penalty (I'm assuming you may be younger than 59½ and potentially subject to the penalty), but you will have to include the portion of your IRA distribution that corresponds to deductible contributions or earnings in your 2001 income and pay income taxes on it.

If you are younger than 59½, I think you would be subject to a 10% penalty on any portion of the withdrawal that you might use for something other than what the IRS considers "Qualified higher education expenses" as summarized above from IRS Pub. 590 -- like lease payments on a Porsche Boxster... I mean a Humvee (you said this was for your son, right?)

Anyway, I suggest you check out Pub. 590 and Form 8606 and decide if this is really the way you want to go...

Hope this helps,
Ron Donnell
Phooley in Phoenix
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