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Hi - this is probably ground which has been covered already, but I did a search and went thru a number of entries with no success.

Some background - I'm in my early 50s, disabled, and was given control of my retirement fund when I was laid off. Between that, my IRA, and my 401K, and some good fortune on the investing scene (thanks in part to FOOLs everywhere!) I've rolled together an IRA of maybe $550,000 or so. Diversified between Stable Value, Growth, and Bond funds. Haven't touched it yet.

I read over the weekend that you can pay for a child's College costs from an IRA, penalty free. I've already applied for a PLUS loan for my daughter's first year of college, starts this fall. My daughter will be liable for the Student Loan portion, which is only about 10% of total costs projected by the college board website.

I hope we can afford it without using any IRA funds. But soon I'll have 2 daughters in college. Then it becomes more difficult to handle without the IRA.

So I'm trying to plan the best course - and need to understand the gotchas for using the IRA. Like, is there a "IRAs for DUMMIES" book?
(I couldn't find one!)

Am I required to take (for example) $10,000 out each year and pay tuition ditrectly with it?

Can I pay for books, etc with IRA funds?

Can I use IRA funds to pay off the PLUS loans?

If my IRA earns $10,000 in dividends each year, can I simply have those dividends go to a money market and pay for college from that?

What records must I keep?

I'm just full of questions.

Thanks for any help and advice ...

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Am I required to take (for example) $10,000 out each year and pay tuition ditrectly with it?

Can I pay for books, etc with IRA funds?


No and yes. You can use as much as you want as long as it pays for "qualified educational expenses" at an institution that is eligible to receive Federal financial aid.

What records must I keep?

I kept copies of the school bills which eventually also showed when they were paid.

Pub 590 has the info you need : http://www.irs.gov/pub/irs-pdf/p590.pdf

Stuff you didn't ask -
Have you submitted a FAFSA ? Has your daughter received an award letter ? Will you or she be eligible for a Hope tax credit ? If so, be careful how you use funds to pay for college.

If you are disabled, I would consider talking to the college financial aid office about additional aid. You're pretty young to start using the IRA money when it sounds like you won't be able to replenish it.

rad

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Stuff you didn't ask -
Have you submitted a FAFSA ? Has your daughter received an award letter ? Will you or she be eligible for a Hope tax credit ? If so, be careful how you use funds to pay for college.

If you are disabled, I would consider talking to the college financial aid office about additional aid. You're pretty young to start using the IRA money when it sounds like you won't be able to replenish it.


I'll second rad's advice. Tapping your IRA for your daughter's education should be a last resort. You can always find a way to repay a loan, you can't borrow to fund your retirement. Additionally, remember that IRA withdrawals used to pay for education are penalty-free, but they are not tax-free.

Ira
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I your disability is total & permanent; e.g. you are colelcting social security benefits; you need not worry about all the "education" rules; simply take whatever amount you so desire out of your IRA penalty free.

TheBadger
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[[soon I'll have 2 daughters in college. Then it becomes more difficult to handle without the IRA.]]

My understanding is that the total amount a family is expected to contribute to paying for college does not increase with additional children in college. If that the amount is, say, $5,000 for one student, it is still $5,000 total with 2 or more student so your daughters would be eligible for more financial help with 2 of them in college at the same time.

Choc
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I'll chime in and say that paying for your daughters' educations is a secondary issue at this point. Your main concern should be making what you have already accumulated last for your lifetime, especially if you are not able to work any longer.

The conventional wisdom is that your children can always get student loans, and attend more modest schools. They can pay for their own education in one way or another.

But having said that, I can understand if helping your children with college is important to you. I'd say that some assistance with paying for their loans after graduation would be a good way to go. You are still not taking on the burden personally, instead helping out when the assistance is more likely to be appreciated.

You also know your family dynamics better than anyone here can. If your children are inclined to take care of you should your own funds run out, then helping them with college is less of a risk. It might even be an investment in your own future - helping them make more money over their lifetime so that they can better help you in the future.

--Peter
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My understanding is that the total amount a family is expected to contribute to paying for college does not increase with additional children in college. If that the amount is, say, $5,000 for one student, it is still $5,000 total with 2 or more student so your daughters would be eligible for more financial help with 2 of them in college at the same time.

This is true - there's an expected family contribution calculator at www.finaid.com - http://www.finaid.com/calculators/finaidestimate.phtml

rad
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Thanks to all for the replies. I read the IRS info and understand things much better now. Still don't know for sure how I'm going to do things, though.

My disability is permanent, probably best described as 'degenerative within the control of myself'. If I do much, I'll wear out my bad parts quickly. If I take care of the damaged parts, I can function OK for a few years.

Given that, I probably can't replenish any IRA funds I use. So my inclination (subject to change) is to use PLUS loans and make the payments from dividends in the IRA. I have one investment which returns about $2,400 per year in dividends - if I just switch it from 'reinvest dividends' to leaving funds in a Money Market, I can probably make PLUS payments from those dividends. Seems like the most harmless way, but still subject to thinking myself out of it.

Again, thanks much for your replies.
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