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Financial Planning / Tax Strategies


Subject:  Re: College funding questions Date:  7/23/2012  12:25 PM
Author:  aj485 Number:  116436 of 129523

Thanks for the input on this, YewGuise. I am definitely planning on leaving my Roth untouched-- the IRA I was considering using is a traditional one.

Because of the taxes penalties, I would strongly suggest pulling from a Roth IRA prior to pulling from a traditional IRA, up to the amount that you have contributed to the Roth. Those withdrawals would be both tax free and penalty free.

Only after you have withdrawan all of your contributions from the Roth would I suggest withdrawing from the traditional IRA.

If you really want to keep the Roth at the same asset level, you can always convert the withdrawn amount from the traditional IRA. This will avoid the penalties.

The reason I want to avoid using the student loans is that the rates aren't very good, and my income level last year prevented me from getting a subsidized loan, so interest would be accruing immediately.

So, for an unsubsidized loan for your last year of grad school, compared to a subsidized loan, you would end up accruing 6.8% interest for 18 additional months, or a total of 10.2% additional interest paid. You will spend almost as much in the penalty, not even counting the tax rate.

And a rate of 6.8% for an unsecured signature loan is still a pretty good rate, IMO.

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