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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 75402  
Subject: Withdrawals from Reg IRA for College Expenses Date: 3/16/2000 5:33 PM
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I am contemplating early retirement in about a year. Until recently, early IRA withdrawals by SEPP were one of the ways I was going to cope with putting my two daughters through college. I am now leaning towards avoiding the SEPP withdrawals and instead withdrawing funds only as necessary to help in funding college via the college funding exception instead.

This would appear to allow much more flexibility since I need only draw funds as necessary to meet college expenses and do not require early withdrawals to meet normal living expenses. Since I will be retiring at age 47, SEPP withdrawals would have to continue for at least 12 years whether or not the money is required, and once established allow little flexibility in determining the amount to be withdrawn.

Am I thinking clearly on this? Does anyone know of any drawbacks to this approach assuming that the college expenses properly qualify for the exception? If the unthinkable should happen and I find it necessary to withdraw funds aver and above those required for educational expenses am I correct in believing that the option will always exist to initiate SEPP withdrawals in addition to those required for college. Thanks in advance for any assistance.

Regards,
FoolMeOnce
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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: 20167 of 75402
Subject: Re: Withdrawals from Reg IRA for College Expense Date: 3/17/2000 7:48 AM
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FoolMeOnce writes:

<<I am contemplating early retirement in about a year. Until recently, early IRA withdrawals by SEPP were one of the ways I was going to cope with putting my two daughters through college. I am now leaning towards avoiding the SEPP withdrawals and instead withdrawing funds only as necessary to help in funding college via the college funding exception instead.

This would appear to allow much more flexibility since I need only draw funds as necessary to meet college expenses and do not require early withdrawals to meet normal living expenses. Since I will be retiring at age 47, SEPP withdrawals would have to continue for at least 12 years whether or not the money is required, and once established allow little flexibility in determining the amount to be withdrawn.

Am I thinking clearly on this? Does anyone know of any drawbacks to this approach assuming that the college expenses properly qualify for the exception? If the unthinkable should happen and I find it necessary to withdraw funds aver and above those required for educational expenses am I correct in believing that the option will always exist to initiate SEPP withdrawals in addition to those required for college. Thanks in advance for any assistance.>>


While an education expense exception is available for early withdrawal, it has not to my knowledge been tested when used to take money from an IRA from which SEPP have begun. IMHO the IRS would probably challenge such a withdrawal and disallow SEPP if another withdrawal was taken at the same time. A better approach, again IMHO, would be to split off a chunk of your IRA to separate accounts. Then you can pick and choose which to use for SEPP and which to use for education. That way there would be no room for an IRS challenge.

Regards..Pixy

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Author: FoolMeOnce Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20212 of 75402
Subject: Re: Withdrawals from Reg IRA for College Expense Date: 3/17/2000 9:42 PM
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TMFPixy writes:
A better approach, again IMHO, would be to split off a chunk of your IRA to separate accounts. Then you can pick and choose which to use for SEPP and which to use for education. That way there would be no room for an IRS challenge.

Let me get this straight: My IRA is a pie. The IRS may not want me to have two pieces of pie. But if I first cut the pie in half I can have two identical size pieces from the respective halves and that is OK? Can you provide any insight into the IRS's logic here?

Thankfully, I doubt that it would become necessary for me to intiate a 72(t) SEPP after taking the education exception, but the planner in my demands that I investigate all options.

Thanks for your insight.

Regards,
FoolMeOnce



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Author: Goofyhoofy Big funky green star, 20000 posts Top Favorite Fools Top Recommended Fools Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 20227 of 75402
Subject: Re: Withdrawals from Reg IRA for College Expense Date: 3/18/2000 9:25 AM
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{{A better approach, again IMHO, would be to split off a chunk of your IRA to separate accounts. Then you can pick and choose which to use for SEPP and which to use for education. That way there would be no room for an IRS challenge.}}
{{Let me get this straight: My IRA is a pie. The IRS may not want me to have two pieces of pie. But if I first cut the pie in half I can have two identical size pieces from the respective halves and that is OK? Can you provide any insight into the IRS's logic here?}}

It's the same logic that says a bank will only insure $100,000 of your account, but if you have a second account, it will insure another $100,000. It's the same logic that says a credit card company will only give you a $15,000 credit line on your credit card, but you can get another credit card if you want. It's the same logic that says I pay a "school tax" even though I don't have any kids, and don't use the schools. It's the same kind of "wash sale" logic that says I can buy back a stock after 31 days, but not 30, and keep the loss for tax purposes.

There are rules. They exist to simplify record keeping, and to make sure that the objectives of the various and several programs are accomplished within the guidelines of the rules set up for those programs. In this case they may not want you co-mingling funds for your own IRA and for educational purposes in a SEPP and deciding later which was what.

Get over it, and get on with it.

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