Re: Impact of money earned in year prior to school on fin aid
Posted: Tue Dec 29, 2009 9:16 pm
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 Because Roth IRA contributions can be withdrawn any time tax- and penalty-free, this retirement savings account can be a powerful college-savings tool. Over ten years, for example, parents could contribute a total of up to $100,000 to Roth IRAs, and it could all be withdrawn tax- and penalty-free to pay college bills. Earnings could be withdrawn penalty-free to pay education bills, too, although taxes would be due on that amount ...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
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 Because Roth IRA contributions can be withdrawn any time tax- and penalty-free, this retirement savings account can be a powerful college-savings tool. Over ten years, for example, parents could contribute a total of up to $100,000 to Roth IRAs, and it could all be withdrawn tax- and penalty-free to pay college bills. Earnings could be withdrawn penalty-free to pay education bills, too, although taxes would be due on that amount ...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