Using IRA for College

[frisbee21]

I'm wondering what are the negatives (besides the obvious, that the money will not grow for retirement, can borrow for college but not for retirement)?

We have a potential $80k gap over 4 years between potential college cost and what is already saved in 529 acct.

There is no penalty for higher education but will be taxed. With loans, we'd have to pay repay with after-tax money plus interest. So same tax rate.

Already have significant amount in retirement (and other savings that we prefer not to tap.)

Not looking for advice on how to lower college costs or get financial aid, just want to know what I'm missing about using a bit of IRA money now (besides the obvious) instead of tapping it in 20+ yrs.

Has anyone else done it and/or does it make sense to you?

[Savoir Faire-Demogague in NJ]

How much is this $80,000 gap in relation to the total cost that you are projecting?

[schildi]

Using our Roth IRA's is our plan B. I don't think we'll ever need it, but that was one important reason why we started to max two Roth IRA's many years ago. It was a good decision.
We do have plan A0, A1 and A2 in place before we'd need plan B, so our Roth's will hopefully (and most likely) be icing on the cake for retirement.

[frisbee21]

This is Plan B worse case scenario.

The total cost could be $200k (no merit aid, no financial aid). This is assuming DD got into top choice, which we would want her to attend.

We have $120k.

I want to be able to send to top choice so looking for feasible ideas without huge loans.

[SVT]

How about DD, get her own loans/aid for the rest?

[robbase]

$200 K for college??!!!!!

hopefully not a major in basketweaving?

[schildi]

Feb 14, 2011 21:48:16 GMT -5 SVT said:

How about DD, get her own loans/aid for the rest?

I agree with SVT. If the total cost is $200K, I think you guys have provided your share with $120K. You can wait a few years, and if by the time you retire, you notice you got tons of money left over that you'll never need, you can then help DD to pay off the SL, or at least pay it down some more. You never know what happens down the road, and you won't be able to borrow for retirement, or ask DD to pay back the college money you provided (at least that would be difficult, I imagine).
And yes, going with a slightly less expensive college may be a good option as well. Can it be done with $120K?
All in all, after hearing these numbers, I would recommend to not raid your IRA(s).

[SVT]

If she is going to be going to a college that is 'top-choice', I would think/hope she'll be getting into something that will be making her 6 figures. With that in mind, $80k isn't that big of a burden to be paying.

[frisbee21]

She's looking at schools btwn $30k-$50k/year. Believe it or not, there are a lot of $50k schools out there. The ones you've heard of offer little merit aid because so competitive. Yes, I admit it, we want to send her to a competitive school of her choice if she can get in.

She's not an entitled spoiled child. She's worked hard in school and has a job (which will cover personal expenses while at college). Major is undecided so frankly it is hard to say if the big bucks will eventually roll in or not.

Again, trying to avoid loans (hers or us).

We do have other retirement accts ($500k+) so we wouldn't be cleaning out all retirement. We are typically fiscally conservative and try to follow most other smart money rules...although I lurk here for better ideas.

So testing your knowledge to figure out if using IRA monies is taboo/grave sin/really stupid idea or fairly common. I will admit I'm waiting for someone to tell me it's a great idea. Anyone?

[Savoir Faire-Demogague in NJ]

Major is undecided so frankly it is hard to say if the big bucks will eventually roll in or not.


That is the kicker for me. She can spend the first two years at a local school or community college while she figures out what fields of study interest her.
Spending $60,000 to $100,000 to find oneself is a bit much.
You mention combined $500,000+ in retirement accounts. What other money do you have laying around and what types of salaries do you guys earn. It appears that is really what will determine your course of action.
I also like the point an earlier poster notes that she should take out loans and you guys can help pay them back later.

[swamp]

Feb 15, 2011 2:02:16 GMT -5 @frisbee21 said:

She's looking at schools btwn $30k-$50k/year. Believe it or not, there are a lot of $50k schools out there. The ones you've heard of offer little merit aid because so competitive.

That's not my experience. I went to a really expensive small private liberal arts school, and my parents paid next to nothing. The more money a school costs, usually the larger the endowment and more money to give away in scholarships.

[973beachbum]

If you really just want an answer on the IRA tax type implications you really are on the wrong board. You should repost your question on the tax board. It has more accountant types.

Personally I live in NJ and even the state school are around $30K a year. I do think that $120K is very generous of you and your other half. I also think that if a child wants a Harvard or Princeton education it isn't wrong of you to have your child to share some of that burden. You never know they might surprise you and decide that it isn't worth the price. At any rate I think it is a conversation worth having no matter what your decision.

[Savoir Faire-Demogague in NJ]

Personally I live in NJ and even the state school are around $30K a year

Rutgers, Montclair State, Rowan, Monmouth, etc., are $30K? Does that also include dorm fees, room and board?

[973beachbum]

Feb 15, 2011 9:53:18 GMT -5 Savoir Faire-Demogague in NJ said:

Personally I live in NJ and even the state school are around $30K a year

Rutgers, Montclair State, Rowan, Monmouth, etc., are $30K? Does that also include dorm fees, room and board?

My neices go to Montclair and Ramapo and I know it is close to $30K with all books fees etc. The cheapest is Stocktton at about $20K a year. I am pretty sure that does not include R&B. I know this also because if you look up how much the state of NJ will reimubrse an employee who goes to college the top number is $33K and it is because that is what Rutgers costs.

Which begs the question, why does anyone come from out of state with those prices?

[Savoir Faire-Demogague in NJ]

Really. That surprises me. I am not in the market but the cost really seems to be very excessive.
An out of state student would be paying a higher amount, correct?

[973beachbum]

Feb 15, 2011 10:00:25 GMT -5 Savoir Faire-Demogague in NJ said:

Really. That surprises me. I am not in the market but the cost really seems to be very excessive.
An out of state student would be paying a higher amount, correct?

You know it! And Rutgers has a high number of foriegn students at it who pay an even higher amount than that.

I am so old that when I went to Rutgers it cost about $2500 a semester for tuition and fees total.

Some of them also have tricks though so if you know anyone looking and price is an issue. Stockton college has a lower per credit price but almost all courses are considered 4 credits. So a normal 5 class semester isn't 15 credits it is 20 credits you will pay for, sneaky bastards.

[Savoir Faire-Demogague in NJ]

I am so old that when I went to Rutgers it cost about $2500 a semester for tuition and fees total.


Yeah, you are an old geezer.

[973beachbum]

I feel it when some of the posters talk about the year I graduated as before they were born!

It is amazing too that the price of an education at Rutger in a little more than 20 years has gone up by more than 6 times. I can't imagine an investment in the past 20 or 30 years that has risen that much.

And DH teaches part time at the local college. I can assure you the increase isn't because they pay very well.

[sesfw]

'The total cost could be $200k'

Holy Cow.

If she doesn't know what her major will be, I would strongly suggest a local college for a couple of years so she can decide without the huge funding outlay. If she insists on the high priced school, she can get some student loans for the balance. She will appreciate her education more. My hubby suggested a stint in the military. She will come out with a skill and go to school on the GI Bill.

I have a g-daughter who is going to a high priced private school and I'm waiting for the 'loan shock' after she graduates.

[stats45]

If your daughter is a good student, I would expect the school to offer something in her financial aid package that would help make up the difference.

[973beachbum]

Feb 15, 2011 10:44:57 GMT -5 stats45 said:

If your daughter is a good student, I would expect the school to offer something in her financial aid package that would help make up the difference.

Every Ivy league type school that I know of only gives merit scholorships unless there is also financial need. That defination of need would change from college to college I doubt from what the OP said that he would have financial need. I don't know that I just got that impression.

[phil5185]

There is no penalty for higher education but will be taxed. With loans, we'd have to pay repay with after-tax money plus interest. So same tax rate.

Agreed - but you may be missing the 'time value of money'. Eg, an $80k lump sum left in a 10% to 12%/yr IRA will be $227,000 in 10 yrs. Whereas an $80k loan accumulated over 3 or 4 yrs will probably cost only 5%/yr for the use of that money.

Again, trying to avoid loans (hers or us).

Avoiding loans just for the sake of avoiding loans may not make good business sense. I sometimes borrow $50k at <6% for 30 yrs - it costs $300/m, ie $108,000. But the borrowed $50k at 11%/yr grows to $1,100,000. I've done this with our rental houses over the past 35 yrs, it has worked well for us. (As you indicate, you still pay the taxes - but put it in perspective, paying taxes on an extra $1M is not entirely bad?) But do the math for your own situation.
IMO, the advice to go to a community college for two yrs is good, especially for someone who is uncertain/undecided - these days the CC system is well coordinated with the 4-yr schools, you no longer lose a semester in the transfer like 30 yrs ago.

[frisbee21]

Thank you all for your advice. I guess no one thinks I have a great idea -- which is why I was asking!

Yes, many expensive schools offer merit aid -- but not the Ivies or the next tier down (eg Georgetown, Notre Dame). The pool of applicants is too competitive. We won't qualify for need-based aid. Local scholarships are available but won't close the $20k/year gap. Maybe if she majored in basketweaving she could be the next Longaberger tycoon, who knows.

You are correct Phil that I was not counting the time value of money. I have to get over my loan fear.

Thanks again.

[DVM gone riding]

one advantage to subsidized staffords is that for four years its interest free-well the first year is-so have your daughter max that out every year-plus it will help her build credit. I have never heard of someone not qualifying for it but then I haven't dealt with that kind of money and college-what is this Harvard/Yale/MIT

[NomoreDramaQ1015]

If she doesn't know what she wants to major in why does her going to a competitive school matter?

I transferred and I've never had an employer give two shits about where I started, just where I finished my highest degree. If she doesn't know what she wants to do spending $200k is a waste. Save yourselves money and send her to CC for the first two years.

Then you can choose a little more wisely based on which school has the best program for her major, not on how "competitive" it is.

[debtheaven]

The total cost could be $200k (no merit aid, no financial aid). This is assuming DD got into top choice, which we would want her to attend.

We have $120k.

I want to be able to send to top choice so looking for feasible ideas without huge loans.

I'm just addressing your question, not the decision to pay 200K for an undergrad degree. I would NOT touch retirement.

If you have 120K set aside (a very impressive sum!), I would pay cash for the first two years, and continue to save for the last two. I would have your child take out loans for the shortfall. As others have suggested, you can always help your DD pay them off.

This said, I have two questions: Do you have other kids, and if so, are you prepared to do the same for them? Also, are you then going to cut your child loose for grad school? Might it not be better to think more holistically about this, and consider the possibility of stretching that 120K out longer-term (ie including grad school or part of it)?

OK that's three questions LOL

[stats45]

There are other options; you can the college money to help pay cash for a house.

[debtheaven]

Not in NJ, Stats. Plus I'm not sure I see the wisdom in that, being that the child is probably only 18 and is unlikely to settle down for years to come.

Stats maybe you mean not helping with college and helping with a house instead? Personally I'd prefer to help with college and it sounds like the OP does too. And from what you have posted, you are helping your younger siblings with college costs too.

Am I missing something?

[stats45]

I meant for a house for you; it is a joke referring to another thread. Sorry! I need to use the /sarc tag...

I'm all for helping for college if you make a commitment to the person you are going to help, and there are shared agreements and expectations.

[debtheaven]

Sorry Stats!

ETA: Got it! But in this case, at least the OP would still have 80K left over.