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Author: misha2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75375  
Subject: Roth IRA for Education Date: 3/8/2000 1:29 PM
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I believe that I had read some place that you can withdraw money from a Roth IRA for education purposes. I have 2 children who will be going to college in 8 years and 16 years hopefully. I am planning on opening Roth IRA's for myself and my wife and funding them fully with the idea of using the proceeds to help fund my kids education. Is this a good idea?
For your info we are debt free except for a small mortgage and 1 small car payment at a low %.
I have a 401k maxed out plus profit sharing account and my wife has a good SEP IRA at work so our retirement is also being taken care of.
We are both in our early to mid 30's

Thanks,
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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19911 of 75375
Subject: Re: Roth IRA for Education Date: 3/8/2000 1:45 PM
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Misha2 asks:

<<I believe that I had read some place that you can withdraw money from a Roth IRA for education purposes. I have 2 children who will be going to college in 8 years and 16 years hopefully. I am planning on opening Roth IRA's for myself and my wife and funding them fully with the idea of using the proceeds to help fund my kids education. Is this a good idea?>>

Yes, you may use a Roth IRA to fund the expenses of a higher education. That may or may not be a good idea because if you withdraw earnings from that Roth to pay for education, the earnings are not tax-free, just penalty-free. To be tax-free, you must be older than age 59 1/2 and the IRA must have been open for five tax-years at the time of withdrawal.

Your annual contributions may be taken at any time for any purpose free of tax and penalty. Those are also considered the first money out of a Roth. As an example, say you contributed $20K to your Roth by the time the first child starts school. At that time, the Roth has grown to $40K. You now take money for education purposes. The first $20K comes out tax and penalty-free because that's your contribution money. Anything above that amount is earnings. While education expense is an allowable early withdrawal from an IRA, it is not a qualified withdrawal from a Roth to escape taxation. Thus, you will pay ordinary income taxes on any earnings taken, but you will not pay an early withdrawal penalty.

Regards..Pixy

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Author: misha2 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19912 of 75375
Subject: Re: Roth IRA for Education Date: 3/8/2000 2:02 PM
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Thanks for the information and I understand your point.
But if I am thinking correctly any money I save out of an education account would be taxed anyway? If my children dont go to college it will still be invested for retirement.
Lastly when they submit for finnancial aid only a small amount of my assets can be figured in and none in a retirement account, and if it is in a education account under thier name they need to consider 100%.

Am I thinking correctly

Thanks

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Author: TMFPixy Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 19916 of 75375
Subject: Re: Roth IRA for Education Date: 3/8/2000 3:26 PM
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Misha2 adds:

<<But if I am thinking correctly any money I save out of an education account would be taxed anyway? If my children dont go to college it will still be invested for retirement.
Lastly when they submit for finnancial aid only a small amount of my assets can be figured in and none in a retirement account, and if it is in a education account under thier name they need to consider 100%.

Am I thinking correctly>>


That's correct on all counts, which may make your approach a good way to go.

Regards..Pixy

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