Message Font: Serif | Sans-Serif
No. of Recommendations: 4
Vanguard Explorer $23,936.62

Vanguard Windsor II $7,067.45

Vanguard US Growth $2,874.73 (ROTH)

I have contributed $5,000 in after taxes contributions to my Roth in the past 4 years. As you can see, it has dropped in value due to the fund I had it in. I am assuming I can take all of this money out untaxed since it is not earnings. That means no taxes but I think I am still hit with a 10% early withdrawal fee unless I can figure out a way to pull this money out and claim it's for my educational debt which is around $20,000.

I am a college students and in my last year of college. I was hoping there is a loophole to use MY money from this ROTH and claim it is for education when it is for personal.

Obviously I need another $7,200 from either of the other two accounts. Can someone tell me what type of taxes I will be expected to pay and what the process is to sell off this amount of shares?

Note: I've read your response to my earlier query.

First the Roth. Since it's worth less than the total of your contributions (I'm assuming non coversions) you can withdraw the entire amount without tax or penalty. The custodian will probably charge an early withdrawal fee, perhaps $50.

I would take the remaining $7,200~ from one account, which looks like Explorer, to minimize early withdrawal charges from the custodian. (If that's not an issue, there's no tax difference between the funds.)

The entire amount withdrawn will be taxable income to you. Since you have other income in the year, you can figure that the entire amount will be taxed at your marginal rate, which is either 15% or 25% depending on how much else you have.

As for the penalty on the $7200, you can avoid the additional 10% penalty on the amount equal to your qualified higher education expenses paid in 2003. There's no tracking rule--you don't have to show that the money was used for that purpose. You'll find a discussion of qualified education expenses in IRS Publication 590. You should also check out Pub 970, which discusses education expenses in general. nb: student loan payments are not a qualified education expense for avoiding the premature distribution penalty.

Don't worry too much now about the reporting, but come back and see us when you're ready to prepare the return.

Phil Marti
VITA Volunteer
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.