USING IRA MONEY TO FUND COLLEGE EDUCATION
It is my understanding that one can use monies from a qualified IRA, SEP, PSP, KEOUGH, etc to fund an college education and avoid the 10% IRS Penaly (if they take the monies out prior to reaching age 59 1/2 after that age it does not really matter)
Nevertheless, even with this “higher education exception” the funds are still taxable correct?
Can a client to a tax free exchange to a 529 plan and possibly remove these funds from the newwly established 529 plan and then pay for for higher education expenses that way i.e. and the funds can be tax free or are the funds still taxable because this can only be done as and “after tax transfer”? But than once inside of the plan the funds would hopefully grow and accumulate tax free as long as they are used to fund higher education expenses correct?
Tony
Permalink Submitted by mk foss on Thu, 2014-04-03 04:18
You cannot to a tax free exchange to a 529 plan. They only accept after tax dollars.If you withdraw from an IRA for higher education, it is fully taxable but no 10% penalty as you’ve mentioned.The 10% penalty WILL apply if the college funds are taken from a Keogh or PSP – the exemption is for IRAs only. A SEP is an IRA and also qualifies for the 10% penalty relief.