Imagine buying a new car every year for four – or five or six – years. At a cost of nearly $25,000 per year, that’s exactly what it’s like paying for a child’s college education.
According to Collegedata.com, the College Board reports that a moderate college budget for an in-state public college during the 2016-17 academic year averaged $24,610. A moderate budget at a private college was nearly twice that.
While most people have been saving for college since their children were born, rising tuition, fees and other costs typically surpass those saved funds, prompting parents to look to other sources.
One source that is now available is retirement accounts. A new federal law eliminates the penalty for early withdrawal from traditional and Roth IRAs if the funds are used to pay for higher education expenses. Withdrawals may still be subject to income tax however.
Normally, account holders incur a 10 percent penalty if they withdraw funds from an IRA before age 59 ½.
The penalty-free withdrawal is available for “qualified higher education expense,” meaning college tuition, room and board, fees, books, supplies and equipment required for enrollment or attendance. Expenses for graduate-level courses are also covered by this exemption.
This is open to the IRA owner, his or her spouse, or any child or grandchild of either spouse. Further, there is no requirement that the child or grandchild be a beneficiary of the IRA owner.
Please contact our office if you have any questions or would like more information.