Roth IRA Distributions for College Education
The average tuition for a year at a public, four-year college rose 6.5 percent to $7,020 in the fall of 2009, according to a report from College Board. That figure is even higher, $26,273, for a four-year private college. It's little wonder that so many parents need a financial boost to help pay for their children's college tuition. Fortunately, it is possible to withdraw funds early, without penalty, from a Roth IRA to help do this.
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School Costs
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Roth IRA withdrawals can be penalty-free when used for higher education. Normally, if you withdraw funds from a Roth IRA before you turn 59½, the government charges you interest on the money you withdrew, plus a 10 percent penalty on those dollars. But this doesn't apply when you withdraw the money to pay for higher education.
The Rules
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You can use your Roth IRA withdrawal to pay for textbooks. The money you withdraw from your Roth IRA must be used toward higher education costs like tuition, fees, books, supplies and other required equipment.
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Qualified Recipients
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You can spend your Roth withdrawal on your children's college education. The Internal Revenue Service allows you to spend your Roth IRA withdrawal not only on yourself. It can also go to a spouse, children or grandchildren. They just have to use the money for higher education costs.
Accredited Schools Only
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The college must be accredited. There is another stipulation: You must spend your Roth IRA withdrawal on an accredited school. So make sure the college you, your spouse or your children or grandchildren will be attending has been accredited.
Before Withdrawing
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Roth IRA funds should be used principally for retirement. Even though you won't face penalties or taxes, withdrawing funds from your Roth IRA early may not be the best move. That money should be earmarked for your retirement. You may want to consider other sources of higher education funding.
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References
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