|Should I withdraw money from my IRA to pay for my child's college tuition? |
Assuming that you have a traditional IRA or Roth IRA, you'll want to consider the financial consequences before making a decision. You'll want to evaluate any fund withdrawals based on several factors:
- How far away from retirement you are
- The size of your retirement fund
- The amount of money you intend to withdraw
- Whether or not you have other sources of cash available
- The tax consequences of a withdrawal
Both the traditional IRA and Roth IRA allow you to withdraw money for qualified higher education expenses before age 59½ without incurring the federal 10 percent early withdrawal penalty that normally applies to such withdrawals. However, you'll need to carefully consider the income tax consequences if your contributions to a traditional IRA were deductible. 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. Even if your retirement is years away, you'll need to consider the impact of the withdrawal on your retirement plans. However, you may have time to reconcile the loss and perhaps even compensate for it by increasing your payback after any withdrawal (subject to annual contribution limits).
If your retirement is close, you'll need to look carefully at the impact of any withdrawal on your retirement plans. Consider the size of the withdrawal, potential tax concerns (your withdrawal may be subject to taxes), and your ability to recover from the loss through other retirement assets, if any. If the IRA is your sole retirement fund, you'll want to investigate alternatives (e.g., financial aid such as grants and federal loans, personal loans) before withdrawing money. After all, a large withdrawal close to your retirement could cripple your plans.