Flipbook_College_2017 - page 12-13

Employer-Sponsored Plan Withdrawals
Most employer plans allow loans (up to a maximum of $50,000)
but limit the amount to 50% of the participant’s vested assets. If you
choose this option, you must repay the loan (generally, over a five-
year period), but you would be paying the interest to yourself, not a
financial institution. One caveat: If you lose your job, you may have
to repay the loan immediately.
If you are participating in a tax-deferred retirement plan — such as an IRA or an
employer-sponsored plan — you could use some of these funds to help pay for college.
However, if you choose to use retirement funds, you would be reducing the money that
will be available in retirement. There are many ways to fund a college education, but
there are no scholarships for retirement!
Using Funds from Tax-Deferred Retirement Plans
Generally, withdrawals from traditional
IRAs and most employer-sponsored
retirement plans are taxed as ordinary
income. Distributions taken prior to age 59½
may be subject to a 10% federal income tax
penalty (with some exceptions, such as the
IRA higher-education exception described).
IRA Withdrawals
IRA withdrawals used for qualified higher-education expenses (such as tuition, fees, and supplies) are not subject
to the normal 10% federal income tax penalty that applies to early distributions before age 59½. This money can
be used not only for your children’s higher-education needs but also for those of yourself, your spouse, and your
grandchildren. Even so, all withdrawals of tax-deferred assets are taxable as ordinary income.
If you have a Roth IRA, regular contributions (but not earnings) can be withdrawn at any time, for any reason,
without any income tax liability or early-withdrawal penalty. For a qualified tax-free and penalty-free withdrawal of
Roth IRA earnings, distributions must meet the five-year holding requirement and take place after age 59½ (with
some exceptions, such as the IRA higher-education exception described).
$16,380
Average amount parents
have saved for college
Source: Sallie Mae, 2016
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