7 Penalty-Free Ways to Tap Your IRA Before Retirement

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Okay, I read about deducting from an IRA account for tuition expenses. May I ask if the money, when withdrawn, will be considered income if it is directly applied to a child's college tuition? I am trying to avoid raising our income, which will impact the FAFSA.

Peggy Phillips of IL 2:53PM March 26, 2013

Can an IRA be used to avoid foreclosure on my primary residence without penalties?

F of WA 7:37PM July 22, 2010

We have already put our children through college and paid for the wedding. We haven't any debt except for the remaining balance on the house. We have already seen our 401k plummet 3 times. We can't take another hit! I wonder, we are 59yr., what if we withdraw enough to pay off the mortgage....we have 12 years left to pay. All that money we could be saving each month. I feel the 401K is just a gamble for us at this point...so why not.

Jean of MA 4:02PM June 28, 2010

Can IRA funds pay tuition with pre tax dollars if the distribution is directly to a private high school or college?

Neil of GA 1:46PM February 02, 2010

I am assuming you are thinking of putting money into a 529 plan for your kid(s). Like any financial decision, there is no wrong or right, but what is the most 'efficient' use of your money. You will not be able to use money from your IRA plan to pay for college without paying a penalty. Before putting money into 529 plan, make sure you familiarise with the limitations. For instance, if you have enough money in your 529 plan, it can limit the amount of financial aid your kid may be getting (yes you get punished for being a diligent parent). In the event your kid receives a scholarship (that would be great!) you will not be able to use the money on the 529 plan (although you can pass the money on to another child). In order to use a 529 plan your child must attend a credited school, so in the event your child wants to be a chef, etc...you will also find limitations in using the funds in a 529 plan. Moreover, there is market risk embedded in this plan and no guarantees of growth. Unlike tuition, which will indeed keep on increasing.

Mike of NY 7:06PM January 27, 2010

what are you thoughts on withdrawing from IRA/401k to put towards the downpayment on a rental property and/or a vacation home that may be used as a rental? is there anyway to avoid the penalty in doing so?

Trying to Invest in Real Property of PA 12:23PM January 27, 2010

I'd like to use my ROTH IRA and/or Individual IRA to survive in this economic hardships. I've been unemployed since January 2009. My unemployment insurance has been exhausted. I am now thinking of withdrawing first my ROTH IRA to survive and if I still cannot find a job within a year to two, I would be forced to tap my Individual IRA. I am 56 1/2 years old. Any thought?

vzs of CA of CA 12:13PM January 27, 2010

Is there any restriction, on spending IRA money to college expenses? Any income limit etc.,
I am thinking of putting my money to IRA instead of 529 plans. Later, the same IRA money is can be spent on college.
Any thoughts?

Saver of CT 11:15AM January 27, 2010

For D. Fultz of PA - Are you sure you aren't thinking of your 401(k) with your employer, and not an IRA? Usually employers offer 401(k) plans and they control the rules, and yes, they can be very restrictive. But the article above is about IRAs which most employers do not offer. And IRA would be through an investment company, such as T. Rowe Price or Fidelity. They cannot restrict you from taking a withdrawal.

Frosty Autumn of OH 10:43AM January 27, 2010

Thanks for the article. As a financial advisor, I really would discourage others from tapping into their IRA or 401(k). It can really have a negative effect on the growth of someone's nestegg. During our working years, we need to do everything possible to grow the nestegg, because it will determine what our income will be when we retire.
There are times when tapping the IRA may be unavoidable, and you have accurately shown some ways that IRA money may be withdrawn without incurring a 10% penalty.
You may contact me through my website, http://www.helpmy401k.us. I also host a weekly financial advice program "Improving Your Financial Health" on Blog Talk Radio at http://www.blogtalkradio.com/401kcoach.

Dean Voelker of IN 10:19AM January 27, 2010