Saving for College via Roth IRAs
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- Last Updated: Tuesday, 09 March 2021
College Savings Accounts
Retirement Plan Example
Let's say Bill has a pension where he works, and he's been fully participating in his employer's 401(k) plan for years. To sum things up, Bill's pretty comfortable with the money he has saved for his retirement years. But being the ultimate financial planner, Bill even has some money placed in a Roth or a Traditional IRA. Since he's comfortable with his retirement planning strategy, his focus is now shifting to paying for college. The good news is Bill has several options when it comes to how he's going to use those IRAs; including the ability to use the money to pay for college expenses.IRA Withdrawal Rules
The reason it's possible to use an IRA to pay for college has to do with the fairly generous exception rules when making an IRA withdrawal before age 59 1/2. Some of the early withdrawal exceptions for Roth IRAs include:- The individual is disabled
- The distribution is used to pay certain qualified first-time homebuyer expenses
- The distributions are part of a series of substantially equal payments
- The individual has significant unreimbursed medical expenses
- The distributions are not more than the individual's qualified higher education expenses, which would include college / university costs
Qualified Higher Education Expenses
For purposes of avoiding tax penalties, qualified higher education expenses include tuition, fees, books, supplies, and equipment required for enrollment or attendance at an eligible educational institution. An eligible educational institution is defined as any college, university, vocational school, or other postsecondary educational institution that is eligible to participate in a student aid program administered by the Department of Education. This definition includes nearly all accredited public, nonprofit, and privately owned / profit-making postsecondary institutions. In addition, account owners are not limited to their children when it comes to paying for college with an IRA. The tax law says eligible individuals include the accountholder, their spouse, their children, their spouse's children, grandchildren, or the spouse's grandchildren.Benefits of Using an IRA to Pay for College

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