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IRA money or student loans?
Old 08-09-2022, 04:02 PM   #1
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IRA money or student loans?

Son is 27 and has 5 years of IRA contributions (plus some after tax savings). He's decided to quit and go back to grad school. I'm struggling with the right advice to give him. As I see it, it's either A) withdraw IRA money now to pay tuition (and avoid 10% penalty); B) Use his after tax savings to pay tuition and keep IRA money invested but pay 10% penalty in a year or 2 when he withdraws for living expenses (tuition is all in the 1st year then some grant money kicks in to cover tuition); C) never withdraw IRA money and take out student loans as needed for living expenses.
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Old 08-09-2022, 04:05 PM   #2
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Edit: IRA contributions is actually 401k contributions that he's rolling into IRA
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Old 08-09-2022, 04:31 PM   #3
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Do student loans for one whole year.

This assumes grad school will make him more employable at a higher salary, not an M.A. in art history...
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Old 08-09-2022, 05:03 PM   #4
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(C) without question. He always has the future option of paying the loans from the IRA in the highly unlikely event that it needs to be done. If he withdraws from the IRA now, it's game over --- he'll never be able to repeat the head start on retirement that he's been wise enough to arrange for himself.
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Old 08-09-2022, 05:08 PM   #5
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Is "D) use the low income years in grad school to convert the IRA holdings from traditional to Roth, while using student loans to fund the schooling" a viable choice?
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Old 08-09-2022, 05:20 PM   #6
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Originally Posted by SevenUp View Post
Is "D) use the low income years in grad school to convert the IRA holdings from traditional to Roth, while using student loans to fund the schooling" a viable choice?
I guess so - presumably he could convert some amount at a 0% tax rate?
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Old 08-09-2022, 05:51 PM   #7
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I guess so - presumably he could convert some amount at a 0% tax rate?
If not 0%, then (as TheWizard implied) presumably at a lower marginal rate than he expects to have after grad school graduation.
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Old 08-09-2022, 06:13 PM   #8
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I reject the premise of debt or crack-the-IRA (either now or later) being the only 2 viable options.

1) Maintain a job & complete the grad degree during nights/weekends, using income to cover grad school costs.
1a) Leverage the education benefits that MANY jobs offer their employees to cover grad school costs.
2) Stay in his job, live like a broke college student (which he soon will be anyway), then save up the money for grad school over the course of a couple years.
2a) If he hates his job & that's why he wants to quit & go back to school, (A) poor reason to make poor choices; (B) Get a new job, then do the same -- save up the money before going to school.
3) Although less common for grad school, scholarships, grants, and sponsorships exist that could provide for a healthy chunk of grad school costs.
4) Many universities have programs in place to get hired on as an employee in some form, then they cover/subsidize your tuition/etc.
5) Has he evaluated his (NUMEROUS) options for what school he's going to attend? This selection can make grad school either easily affordable or outrageously expensive.
6) Only you can answer this, but family assistance? Can you, grandparents, or a rich uncle chip in to help fund his grad school costs?

.......Just a few options off the cuff. Layer a variety of the above in combination, and the problem gets even easier. My bottom line: If all of your options suck, get yourself some new/better options.
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