|Should I withdraw money from my IRA to pay for my child's college tuition? |
If you're considering withdrawing money from your traditional IRA or Roth IRA to pay for college, you'll want to evaluate several factors:
How many years you have until retirement
Your retirement balances
The amount of money you intend to withdraw
Whether you have other sources of money available
The tax consequences of a withdrawal
Both traditional IRAs and Roth IRAs allow you to withdraw money before age 59½ for a child's college expenses without incurring the federal 10% early withdrawal penalty that normally applies to early withdrawals. As for income tax, Roth IRA withdrawals are typically tax free (if certain requirements are met) because Roth contributions are made with after-tax dollars (which means they have already been taxed). However, you'll need to carefully consider the income tax consequences if your contributions to a traditional IRA were deductible. In this case, the amount you withdraw will be added to your taxable income for the year you withdraw it. This could be enough to put you in a higher tax bracket.
If you are close to retirement, look carefully at the impact of any withdrawal; a large withdrawal could alter your plans. Even if you aren't close to retirement, it may take years for you to replace those lost funds, so think carefully before doing so.