Comments on: Using Retirement Funds to Pay for College http://www.fivecentnickel.com/2006/01/27/using-retirement-funds-to-pay-for-college/ personal finance tips, tricks, and commentary Sun, 22 Nov 2009 04:49:32 -0500 http://wordpress.org/?v=abc hourly 1 By: SFMoney http://www.fivecentnickel.com/2006/01/27/using-retirement-funds-to-pay-for-college/comment-page-1/#comment-2057 SFMoney Tue, 28 Feb 2006 20:31:14 +0000 http://www.fivecentnickel.com/2006/01/27/using-retirement-funds-to-pay-for-college/#comment-2057 This is advice from a buddy who used to work at the IRS: retirement funds are great for a working adult planning to return to school full-time. While working, you can salt away up to 25% of your pay (up to roughly $15K/yr) in a 401K, plus another $4K in an IRA. When you leave work to return to school, simply rollover the 401K into the IRA, and then take a penalty-free taxable withdrawal from the IRA. At the federal level, you can offset up to $2K in taxes due on the IRA withdrawal with the Lifetime Learning Credit. (Remember, the Lifetime Learning Credit is worth 20% of the first $10K of tuition and fees.) At the state level, there are various credits and deductions as well -- although unfortunately none for my state, California. But at least in terms of federal taxes, you can have your cake and eat it too. This is advice from a buddy who used to work at the IRS: retirement funds are great for a working adult planning to return to school full-time.

While working, you can salt away up to 25% of your pay (up to roughly $15K/yr) in a 401K, plus another $4K in an IRA.

When you leave work to return to school, simply rollover the 401K into the IRA, and then take a penalty-free taxable withdrawal from the IRA.

At the federal level, you can offset up to $2K in taxes due on the IRA withdrawal with the Lifetime Learning Credit. (Remember, the Lifetime Learning Credit is worth 20% of the first $10K of tuition and fees.)

At the state level, there are various credits and deductions as well — although unfortunately none for my state, California.

But at least in terms of federal taxes, you can have your cake and eat it too.

]]> By: Dan Davenport http://www.fivecentnickel.com/2006/01/27/using-retirement-funds-to-pay-for-college/comment-page-1/#comment-1947 Dan Davenport Wed, 22 Feb 2006 19:08:02 +0000 http://www.fivecentnickel.com/2006/01/27/using-retirement-funds-to-pay-for-college/#comment-1947 You can also establish yourself as the beneficiary of a tax-favored 529 plan account. Later on, if you do not use the funds, they can be transfered to benefit a family member such as a child or spouse. Most 529 plans are sponsored by a state and some states offer income tax benefits, such as Montana. Montana offers the CollegeSure CD; guaranteed to meet the future cost of college and FDIC insured. You can also establish yourself as the beneficiary of a tax-favored 529 plan account. Later on, if you do not use the funds, they can be transfered to benefit a family member such as a child or spouse.

Most 529 plans are sponsored by a state and some states offer income tax benefits, such as Montana. Montana offers the CollegeSure CD; guaranteed to meet the future cost of college and FDIC insured.

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