The Roth IRA is not only a beneficial tool for retirement saving, but it may also prove helpful for funding college. The Roth IRA has some features that make it an attractive option if you need extra cash to pay for post-secondary education for you, your spouse, your child or grandchild. For instance, when you use Roth IRA distributions for educational expenses you will not have to pay taxes or penalties, provided the money withdrawn does not exceed the sum of your contributions. It is important, though, to follow rules governing the use of the money.
Instructions
1. Add up how much you have contributed to your Roth IRA to date. Since you have already paid taxes on the money you have put in your Roth IRA, you won't be taxed when you take that money out. Unless you have no other option, plan only to take out the sum of your contributions. If you start tapping into your Roth IRA investment earnings, you will be taxed on the earnings.
2. You, your spouse, child or grandchild must be planning to attend a qualifying institution of higher education. Qualifying institutions are those that accept federal financial aid administered by the U. S. Department of Education.
3. Calculate how much money from other sources you have to pay for the current year's educational expenses by adding up the amount of money you have from grants, scholarships, fellowships, employer contributions, gifts and other savings. Subtract that number from the total owed in qualifying educational expenses. The difference is the amount you are permitted to withdraw from your Roth IRA.
4. Contact your financial planner or your financial institution and withdraw the money from your Roth IRA. Use the distributions to pay for qualifying educational expenses such as tuition, books or supplies. Students enrolled at least half-time may use distributions to pay for room and board as long as they do not exceed the educational institution's allowance for room and board or the actual amount charged for the student's room and board. Keep accurate records.
5. Repeat Steps 3 and 4 for each year needed. You can skip years of withdrawal if you wish.
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