Retirement tax questions

@mapaww - remember that loans come with interest that eat up the savings.

 

Let's assume you find an institution that is going to lend your daughter $70,000 for a student loan for her JUNIOR YEAR of college.  Let's further assume the interst rate is 6% in today's environment (that may be quite low - not sure).

 

She is in a 32% tax bracket today (because of the kiddie tax).

 

if she lands a job out of college that puts her into the 22% tax bracket (approx. $53k-103k of gross income) and she distributons $70k from the IRA to pay off the loan, that IRA is taxed at 22%, but then you have two years of interest payments at 6% each year, so the 'tax' is 34%! (I added 2 years at 6% each year).

 

Now if she gets a job that pays less than $53k and the tax bracket is 12%, it begins to make sense to take out the loan while in college....

 

good luck!