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    Roth Withdrawal for College

    A party is under 59.5 and wants to pull more than the Roth basis for a kid's college.

    Some web searches suggest there is no tax or penalty on the "profit" yet others say the opposite.

    Is the "profit" of a Roth subject to tax and penalty when used for college when the account owner is age 50.

    Mahalo,

    Bjorn

    #2
    Originally posted by Bjorn View Post
    A party is under 59.5 and wants to pull more than the Roth basis for a kid's college.

    Some web searches suggest there is no tax or penalty on the "profit" yet others say the opposite.

    Is the "profit" of a Roth subject to tax and penalty when used for college when the account owner is age 50.

    Mahalo,

    Bjorn
    According to Pub. 590-B, page 31. Exception to 10% penalty.
    The distributions aren't more than your qualified higher education expenses

    https://www.irs.gov/pub/irs-pdf/p590b.pdf

    Comment


      #3
      TheTaxBook adds the following: "Caution: To qualify, expenses must be paid in same year as IRA distribution. (Duronio, T.C. Memo. 2007-90)".

      The earnings (everything above the basis) will still be subject to ordinary tax, even if not the penalty.

      Although it wasn't asked, I think this is a very bad idea from a financial planning standpoint. For a 50+ year old, money already in a Roth has a lot of value, I think. Taking it out for a child's college and paying current tax on it seems like it could greatly harm the taxpayer's future retirement funding. Probably much better to try for student loans in the name of the student; one can always help pay the interest, or help pay down the principal later.
      Last edited by Rapid Robert; 05-22-2018, 01:05 PM.

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