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First of all I commend your efforts
Actually, the is an EXCEPTION to the IRA 10% if the withdrawal is for education
As long as the withdrawal, in any tax year, is less than the total cost of tuition
Here's what IRS says:
Generally, if you take a distribution from your IRA before you reach age 59½, you must pay a 10% additional tax on the early distribution. This applies to any IRA you own, whether it is a traditional IRA (including a SEP-IRA), a Roth IRA, or a SIMPLE IRA. The additional tax on an early distribution from a SIMPLE IRA may be as high as 25%. See Publication 560, Retirement Plans for Small Business, for information on SEP-IRAs, and Publication 590, for information about all other IRAs.
However, you can take distributions from your IRAs for qualified higher education expenses without having to pay the 10% additional tax. You may owe income tax on at least part of the amount distributed, but you may not have to pay the 10% additional tax.
and here's the link to IRS pub 970 section that deals with this: http://www.irs.gov/publications/p970/ch09.html
What WILL happen, is the amount withdrawn will be added to your other taxable income for the year ... So, for example, if you have 10,000 of W-2 earnings in a yes and distribute 35,000, then you actually have 45,000 of taxable income for the year
SO, to get a feel for the COST of those funds you really have to look at your tax bracket and see what rate of tax you'll pay
(the following year)
My tax bracket would probably end up being over 100k then.
it would be between 100k and 150k.
with the withdrawl.
Ok, now, the loans aren't taxed as income ... because those will need to be paid back... you're adding earning" (such as wages or 1099 independent contractor income?)
Here are the brackets fort 2013
Yes, I would be in the 28% tax then.
SO, you're squarely in the 28% bracket, so that incremental income from the ira...
you got it
There's the less quantifyable piece, however, that you won't need to pay back the IRA $
hm..yes, that is right.
quantifiable, BUT gets complicated....because there's the opportunity cost of NOT havng thollars later for retirement
in your opinion, what is better? With the loan, I will end up paying more if i take out more. And yes, if I do take out from my IRA, I get less.
for retirement funds.
the less quantifiable piece, (having less payments after you're done)
Are you doing federal lending? (Federal student loans?)
it would be a bank loan.
Depending on your situation, you MAY still qualify for a graduate plus loan, as an independent , especially if you have any dependants, etc ... VERY low rates and fantaxtic payback schedules
Do you know if I will also be able to deduct my transportation costs to school at the end of the year?
Another option is somethingsecured with your home (tax deductible interest and relatively low rates)
Hang on and I'll get the list
For purposes of the tuition and fees deduction, qualified education expenses are tuition and certain related expenses required for enrollment or attendance at an eligible educational institution.
So does this mean my educational costs be used for the 2013 tax deduction?
HOWEVER, you may get more bang for the buck by taking the lifetime learning tax CREDIT (a dollar of dollar reduction in tax, as opposed to the DEDUCTION from income for tax purposes, above
Yes, if the costs are incurred IN 2013
BUT first, see this:
What is the tax benefit of the lifetime learning credit. For the tax year, you may be able to claim a lifetime learning credit of up to $2,000 for qualified education expenses paid for all eligible students. There is no limit on the number of years the lifetime learning credit can be claimed for each student.
A tax credit reduces the amount of income tax you may have to pay. Unlike a deduction, which reduces the amount of income subject to tax, a credit directly reduces the tax itself. The lifetime learning credit is a nonrefundable credit. This means that it can reduce your tax to zero, but if the credit is more than your tax the excess will not be refunded to you.
Your allowable lifetime learning credit may be limited by the amount of your income and the amount of your tax.
Here's the information on the Lifetime learning credit: http://www.irs.gov/publications/p970/ch03.html#d0e2940
ah..i see..Yes, the lifetime learning credit will be better for me.
It usually, (Credit vs deduction)
I guess after your discussion. I am leaning towards just taking a loan. and using the lifetime credit.
IF you can do it that way, purely financially, it makes more semse (just not immediate gratification) ... Preserves that IRA, not only for retirement, but provides option for unexpected issues as well
THink of the opportunity cost ... not only is the a hefty tax cost ... you're giving up the earnings on thos dollars as well
yes, that is correct.
I can tell you from experience that the MBA, if you stay in ANY kind of business or leadership at all, will pay rewards as well (both quantifiable AND provide options) which, as you will probably dig into, has a monetary value as well
Thank you very muchCustomer Yes, I will certainly keep that in mind:).
Probably stating the obvious, but at 28% the benefit of a deduction is 28% (spend a dollar to save 28 cents) a tax credit is dollar for dollar .. just to get it out there
THank you much and ENJOY, this can be a wonderful time you'll never forget
Thanks againCustomer. That was very helpful.
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Sure, definitely! I will come back if I have another question.
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have a great day...i will do so.
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