Should You Use Your IRA to Pay for College?

The average cost of a college education is over $30,000 per year and rising. One helpful means to consider is a college savings account. Another is to tap into your IRA or Roth IRA to cover a range of college expenses.
In most cases, the IRS charges a 10 percent penalty for withdrawal from an IRA prior to age 59. However, you can use IRA funds to pay for college without the penalty. To be eligible, you or your family member must have qualifying educational expenses within the year you take distribution. You cannot, however, use the funds to pay off student loans after graduation.
To qualify, you or your family member must also show that the student is attending an eligible institution of higher learning. These include universities, other colleges, vocational schools, or private or non profit secondary schools. Students require enrollment at an accredited school and must be eligible for student aid programs provided through the US Department of Education.
Those who qualify include yourself, your spouse, your children, or grandchildren. You can use IRA funds without penalties for tuition, books, room and board, supplies, and equipment that requires enrollment or attendance. The student needs to be enrolled at least half time.
Deciding Whether You Should Use Your IRA or Roth IRA
We recommend you review your situation with a qualified tax professional. For clients of ours, we will examine your situation and provide personal advice at no charge.
Actions you will need to consider include:
The timing: Although there are no penalties on withdrawals, the distribution cannot exceed the amount of education expenses paid in the same calendar year. Therefore, as we approach the new year, the timing might be right to do this now.
Make sure your school qualifies: Do not take money from your IRA until you have confirmed your school qualifies.
Record Keeping: Maintain proper records of expenses paid with IRA funds. If the IRS chooses to audit you, the burden of proof will be on you.
Professional Tax Services is a locally owned provider serving over 3,500 local residents and businesses. For more information call 661-259-1967 or visit www.protaxservices.com. Through their complimentary EZ2 Thrive program, they provide unlimited free tax planning advice to their clients.