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Withdrawals for college.

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Tiredmom
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Withdrawals for college.  Reply with quote  

Hi,

I am fortunate to have over $1,000,000 in my IRA. I've read all there is to read on withdrawing for education and understand the ramifications from a tax perspective but need more personalized advice. My youngest daughter will be starting college this fall and understandably, she received no financial aid. If I have a shortfall of about $15,000 each year (excluding Freshman year), how harmful is that withdrawal to our retirement?

My husband is 53 and has about $250,000 in his account. I am 51. Together we currently gross about $225,000/year. We do not live above our means. We have no debt aside from our $175,000 mortgage which has 14 years left. We have put three other children through (much less expensive ) college. We both work in sales so our income is flexible, but not wildly so.

This last child is a high achiever and I feel she would take advantage of a private school education, but I am having sticker shock.

Thank you for your thoughts.
Post Mon Apr 08, 2013 10:31 pm
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oldguy
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I would completely avoid touching the $1,250,000 IRAs pre-59 1/2, the penalty si way too high, especially in your bracket. You'd be selling $100k to net $50k.

Congratulations on putting the other three children thru college, that's great!

Three thoughts.
1. Refi the house, 30 years, fixed rate (<4%) and take out an extra $50k or $100k. US home mortgages are among the least expensive capital in the world, all other nations offer FP for only 10 yrs, then you must refi at new rates. So that is an excellent source for you.
2. Get a private student loan for $50k - the rate will be a bit higher and the term will be a bit shorter - but a far cheaper option than breaking into the IRAs.
3. Community College - the current colleges are standardized so that all of their courses correlate with the 4-year universities. It's no longer like it was when we went to school - ie, 2 years of CC, lose a bunch of credits, then 3 years at the 4-yr university. The two big savings are the tuition - and living at home for 2 yrs. And her degree will be the same either way - ie, a degree from the private school.

I'd pick #1 - you'll never win the arguement on #3, lol. And I like the lower cost, longer term of mortgages. (Of course, I'm not hung up on the "paid-for house" thing, I have one rental house that will be paid-off at age 94 - unless I refi it again Very Happy ).
Post Mon Apr 08, 2013 10:54 pm
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coaster
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I'd suggest trying to avoid the private student loan route if possible. The private student loan industry is a national scandal brewing. You wouldn't believe the number of posts we get from students with shocking debt loads to private lenders at rates that should be illegal. I know it's different in your case, since you're taking out the loan yourself on your child's behalf, and if you do consider doing so, consider only fixed-rate loans and be sure you read all the fine print. The regulation and oversight of the private lenders is sorely inadequate. Why patronize and support such crooks if you can do it another way? I like oldguy's option #1: a cash-out refi. With your income and assets it should be a breeze.

~Tim~
Post Tue Apr 09, 2013 5:10 am
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Tiredmom
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Poor planning on our part-we just refinanced about a year ago. I will look into a HELOC. That is a good idea. It is my understanding that monies taken from an IRA is not penalized although I obviously would have to pay taxes.
Post Tue Apr 09, 2013 12:27 pm
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littleroc02us
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Crazy idea, but why can you not cash flow college when you make $225,000/$12,500 monthly at a more affordable University or State school. I work for a major University and it's a sad situation when parents around here think their kids can only spend a fortune to send their kids here instead of having them go to a more affordable state school. I mean what exactly are they getting in return for spending over 100k in educational costs. I would investigate what the return on investment is on the college your child picks. I went to a technical school for far less then what a state school or University costs and I do quite well in my field and don't have all of the debt most students do.

Risk comes from not knowing what you're doing. (Warren Buffet)
Post Tue Apr 09, 2013 2:28 pm
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coaster
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quote:
Originally posted by Tiredmom
It is my understanding that monies taken from an IRA is not penalized ...

Depends on the type. Taxes also depends.

If it's a Roth, you can remove the contributions without tax or penalty:

http://www.obliviousinvestor.com/roth-ira-withdrawal-rules/

Obviously, though, removing the contribution reduces the earning power. If your cost of borrowing is less than what the contribution is earning, then getting your money from your IRA is a net-net negative to your entire financial big picture, regardless of the tax or penalties.

~Tim~
Post Tue Apr 09, 2013 5:49 pm
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Tiredmom
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I attended a state school as did two other children. My husband went to a technical school and other daughter went to a private University but received athletic money. Each child is different. I'm not going to debate why this child should or should not go to a private college. I've been around the block with this college thing and have put a lot of thought, time and effort into the choice for this child. Right or wrong.

I have decided taking the money from an IRA is just dumb. We will figure something out.
Post Tue Apr 09, 2013 10:44 pm
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oldguy
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quote:
we just refinanced about a year ago. I will look into a HELOC. That is a good idea.
I have decided taking the money from an IRA is just dumb. We will figure something out.


Good - but I would not let your recent refi deter you, a safe fixed rate <4% 30 yr loan will serve you better than a HELOC. They are variable rate, a higher rate, and a shorter term. And if you have sufficient equity to get a HELOC, then you also have enough equity to get a larger first mortgage.
(I refi our rental houses often to remove equity and invest it elsewhere - my own experience is that first mortgages are better than second mortgages & Line of credit loans.)
Post Wed Apr 10, 2013 1:55 am
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steevennsmithh
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you can some money in fixed deposit, and some money in investment in fund.
Post Wed Apr 17, 2013 4:08 pm
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