Which is better to pay for child's college, IRA withdraws or student loans?
Question:
Answer:
Student loans. Money in your IRA is growing tax-deferred and does not have to be withdrawn until you are 70-1/2 years old. The student gets the benefit of the loan while in college and has a grace period for repayment.
http://studentaid.ed.gov/portalswebapp/s...
After a student graduates, leaves school, or drops below half-time enrollment, he has a period of time before he has to begin repayment. This “grace period” will be
six months for a Federal (FFEL) or Direct Stafford Loan.
nine months for Federal Perkins Loans
A great deal depends, of course, on your personal financial situation, the tax bracket you are in. See a financial aid counselor and your tax accountant for additional information.
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Student loans - you don't get any tax write-offs with an IRA withdrawl and if the IRA is not a Roth IRA you will get hit with tax penalties.
Good Luck!
I am not positively sure about the write-offs but...
Think about the interest rate that the student loans will have.
Even if you just have, say, $5000.. it's going to amount to more.
IRA withdrawls will let you take what you need and there is no interest rates or taxes and what-not.
You generally can't withdraw money from an IRA until you are 59 1/2 years old. If the IRA does allow you to do that, you will have tax penalties to pay. Student loans are better.
Student loans are better for a multitude of reasons.
But a better solution yet is to make the kid major in engineering. They can get internships to get themselves through and at the same time be making enough money to pay for their tuition, room, and board and graduate with no debt. That's our plan for our kids. Fortunately, they're smart enough to be engineers, and if they don't like engineering then they can graduate and get their Master's degrees in something else and be even more employable.
I can't answer which gives better tax write-offs, but I can say this, before I liquidated anything from an IRA - which unless it's a Roth and you've had it for five years could mean heavy early withdrawal penalties, I would look into taking out all the subsidized education loans I could. Meaning that the govt. will pay the interest on the loan as long as the child is in school at least half-time. I'd look at this money as a loan and make plans to have the assets saved to pay it off once the child graduates. Additionally, I think I'd try and tap a home equity loan if possible,again, before I touched the retirement, as the interest is tax deductible. But you have to be careful here, because if you default on the payments, you could lose your house and wreck your credit.
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