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Life Events

Every stage of life has its own financial needs and concerns. The life events on this page can help you target the key financial strategies and issues that are likely to be most important to you in this stage of your life.

Starting Out    Changing Jobs    Coping with Unemployment    Getting Married    Starting a Family    Saving for College    Starting a Business    Planning/Saving for Retirement    Managing College Expenses    Long-Term Care Planning    Planning an Estate    Planning for Business Succession    Nearing Retirement/Retirement    Caring for an Aging Parent    Loss of Spouse    Financial Windfall    Getting Divorced   
Should I withdraw money from my IRA to pay for my child's college tuition?

If you're considering withdrawing money from your traditional IRA or Roth IRA to pay for college, you'll want to evaluate several factors:

  • How many years you have until retirement
  • Your retirement balances
  • The amount of money you intend to withdraw
  • Whether you have other sources of money available
  • The tax consequences of a withdrawal

Both traditional IRAs and Roth IRAs allow you to withdraw money before age 59½ for a child's college expenses without incurring the federal 10% early withdrawal penalty that normally applies to early withdrawals. As for income tax, Roth IRA withdrawals are typically tax free (if certain requirements are met) because Roth contributions are made with after-tax dollars (which means they have already been taxed). However, you'll need to carefully consider the income tax consequences if your contributions to a traditional IRA were deductible. In this case, the amount you withdraw will be added to your taxable income for the year you withdraw it. This could be enough to put you in a higher tax bracket.

If you are close to retirement, look carefully at the impact of any withdrawal; a large withdrawal could alter your plans. Even if you aren't close to retirement, it may take years for you to replace those lost funds, so think carefully before doing so.

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