are retirement account distribution used for dependent tuition taxable
If you limit your withdrawals from a Roth IRA to just the contributions, the distribution is tax and penalty free when used for qualified higher education expenses. Funds in a traditional IRA are sheltered from the financial aid need analysis, and so have no impact on financial aid eligibility. Dear Dr. Don, I am 50 years old, and I want to cash out and close my regular individual retirement account of $8,000 to use on educational expenses for my twin children who started college in September. Normally, if you withdraw money from a traditional or Roth IRA before you reach age 59-1/2, you would pay a 10% early distribution penalty on the distribution, in addition to any regular income tax due. There is, however, an exception for distributions used to pay qualified higher education expenses. Some parents use a Roth IRA as a combined college and retirement savings vehicle. When they need to pay for college expenses, they limit their withdrawals to the contributions in order to avoid paying any income taxes on the distribution. The earnings remain in the Roth IRA to pay for retirement. If you take a distribution from a traditional IRA or Roth IRA to pay for college before age 59½, you’re generally exempt from the 10 percent early withdrawal penalty. If the proceeds of your distribution represent contributions (rather than earnings) from a Roth IRA, the distribution is usually not subject to taxes. The Tax Court concluded that he had to pay a 10% early withdrawal penalty of $1,288, because the education expenses exception applied only to IRA distributions and not to distributions from other retirement plans. Tuesday, September 3, 2013. Using IRA Distributions to Pay Tuition and College Housing. IRAs (Individual Retirement Accounts), 401(k) plans, and other retirement accounts are supposed to be used for retirement purposes, and there is a 10% penalty on early withdrawals to persons younger than 59-and-a-half years old. Because income weighs more heavily than assets in these calculations, IRA distributions may actually reduce the amount of financial aid your child may receive. Depending on your employer's workplace retirement plan rules, you may be able to borrow against the value of the assets in your 401(k), 403(b), or 457 plan. Any amount you withdraw as a hardship distribution will be taxed as ordinary income, and a 10 percent penalty will apply if you are younger than 59½. These taxes and penalties will take a serious cut from the amount you will have available to pay for college costs. IRA withdrawal for kids’ education expenses? I am 50 years old, and I want to cash out and close my regular individual retirement account of $8,000 to use on educational expenses for my twin children who started college in September.
Yes, IRA distributions to pay tuition and college housing.