Should I Withdraw Money From My Individual Retirement Account (IRA) to Pay for My Child's College Tuition?

If you're considering withdrawing money from your traditional IRA or Roth IRA to help pay for college, you'll want to evaluate several factors:
  • How many years you have until retirement
  • Your retirement balances
  • The amount of money you intend to withdraw
  • Whether you have other sources of money available
  • The tax consequences of a withdrawal
Both traditional IRAs and Roth IRAs allow you to withdraw money before age 59½ for a child's college expenses without incurring the federal 10% early withdrawal penalty that normally applies to early withdrawals.

As for income tax, Roth IRA withdrawals are typically tax free (if certain requirements are met) because Roth contributions are made with after-tax dollars (which means they have already been taxed). However, you'll need to carefully consider the income tax consequences if your contributions to a traditional IRA were deductible. In this case, 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.

If you are close to retirement, look carefully at the impact of any withdrawal; a large withdrawal could alter your plans. Even if you aren't close to retirement, it may take years for you to replace those lost funds, so think carefully before doing so.

To discuss how a withdrawal from an IRA may help you pay for college and/or how it may impact your long-term retirement plan, schedule an appointment with a First Bank Wealth Management Advisor.
 

IMPORTANT DISCLOSURES

Broadridge Investor Communication Solutions, Inc. does not provide investment, tax, legal, or retirement advice or recommendations. The information presented here is not specific to any individual's personal circumstances. To the extent that this material concerns tax matters, it is not intended or written to be used, and cannot be used, by a taxpayer for the purpose of avoiding penalties that may be imposed by law. Each taxpayer should seek independent advice from a tax professional based on his or her individual circumstances. These materials are provided for general information and educational purposes based upon publicly available information from sources believed to be reliable — we cannot assure the accuracy or completeness of these materials. The information in these materials may change at any time and without notice. Prepared by Broadridge Advisor Solutions Copyright 2023.

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