Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I've been reading the Foolish Retirement plan primer and still Im not absolutely certain. What I want to do is save for my kids education through a Roth IRA. Why not education IRA you ask? Well, because its less flexible (500 limit/yr, only used for education or taxed, shows up as kids income when it comes times to apply for financial aid, etc, etc.)

On pg. 4 of the retirement planner, itemized bullet 7. it says you won't get charged the 10% penalty for withdrawal from an IRA before age 59.5 if you're paying for higher education expenses. I assume this applies to Roth IRAs as well?

But will I still get charged regular income tax on the Roth IRA withdrawal if taken before age 59.5 for higher education expenses?

thanks for any clarification. the reason i went down this path in the first place is because of the article in November's copy of Money magazine. It suggests Roth IRA as an option for paying college costs, but it too is not crystal clear on all the issues.

***Your contributions to a Roth are not taxable, no matter when you take distributions. Qualified distributions from a Roth are not taxable at any time.

A qualified distribution is, generally, any payment or distribution from your Roth IRA made after the 5-taxable-year period described below under 5-year rule, and:

Made on or after the date you reach age 591/2,
Made because you are disabled,
Made to a beneficiary or to your estate after your death, or
That meets the requirements for First home (up to a $10,000 lifetime limit).

There is nothing wrong with using what you had contributed to your Roth, through the years, for education purposes. This would leave the accumulations to accumulate tax free income. If you were to dip into those accumulations, for qualifying education purposes, you would have to pay income tax but no penalty would be attached.

Although education qualifies for exclusion from the penalty, it will not qualify as a tax free distribution
as might be the case with a qualified distribution for the purpose of purchasing a first home.

Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.