Impact of money earned in year prior to school on fin aid Forum

[UCInfo]

Lxw -- Earnings (the amount above cost basis) on Roth withdrawals are tax exempt only upon withdrawal at age 59-1/2 or if you meet other specified requirements. Otherwise, you pay a 10 percent early withdrawal penalty on the earnings, in addition to that amount becoming taxable income. You can withdraw the earnings without the 10 percent early withdrawal penalty if you use the money for educational purposes, however. You are always allowed to withdraw the original contribution portion of your Roth contributions tax free because that money has already been taxed.

GeePee -- Feel free to point out what you think is wrong. Here is what Kiplinger's says (http://www.kiplinger.com/features/archi ... pedia.html):

IRA withdrawals for education. A taxpayer under age 59½ can avoid the 10% penalty on IRA distributions used to pay higher education expenses for his or herself, a spouse or a dependent. However, the payout from a traditional IRA and any earnings that come out of a Roth IRA before age 59½ would still be taxable.

Roth IRA. Because Roth IRA contributions can be withdrawn any time tax- and penalty-free, this retirement savings account can be a powerful college-savings tool. Over ten years, for example, parents could contribute a total of up to $100,000 to Roth IRAs, and it could all be withdrawn tax- and penalty-free to pay college bills. Earnings could be withdrawn penalty-free to pay education bills, too, although taxes would be due on that amount ... unless the parents were over 59½ at the time

[rickysteves]

I've heard it said, tongue-in-cheek perhaps, that you should spend all of your assets before filling out the FAFSA, so that you get more need-based aid. Also, is it too late to do this now? Does the FAFSA and NeedAccess ask about assets that you own when you fill out the apps, or those that you had during the previous year?

[Kulax22]

Hi All,

I'm reading about financial aid for the first time now.

I've been out of school going on 5 years. I make under 50. I am really trying to figure out "OK what the hell happens to me?"

I've always got the impression that somehow I can come up with the loans. But how real of a danger is it that I simply won't be able to pay and go to law school?

[heathbar88]

Forgive me if this sounds stupid (or morally wrong), but can't you just lend your sister the money (savings) for something..take it out of savings, write her a check for it..then whatever she needed it for happens to be cancelled and she pays you back? Similar to taking it out and putting it into another account and removing it later..minus the penalty fees.

[bahama]

You should count the money your sister owes you as an asset since she is going to pay it back. Just like a bank or other company counts the money you owe them as an asset.

You could have some issues if you get chosen for verification and have to show bank statements and there are these transactions where you give away most of your money and then get it back later and you didn't disclose it.

And then there is the whole ethical issue.