An IRA is a personal account that allows you to start saving up for your retirement. Because this account isn’t subject to taxes, you can compound your funds at a faster rate. However, if you have children that will soon be attending college, you might be considering dipping into your retirement savings to supplement the costs. Below is a comprehensive overview of how you can use these funds towards you child’s education.

How IRAs Can Fund College

Roth and traditional are the two main types of IRAs. While both accounts can be used to pay for you child’s college education, the Roth variety is the preferred method because it isn’t subject to a 10% penalty fee if you withdraw before the age of 59. However, this only applies if the funds are being used to pay for tuition or other education-related expenses, such as housing and books, for a student who is enrolled at least part-time in a degree program. 

What to Consider Before Withdrawing

Withdrawing from your IRA might affect your child’s eligibility for financial aid. These funds must be reported as an income asset when applying for federal aid. Another factor to consider is the potential for penalties. For instance, if your account was opened less than five years prior to withdrawal, you might still be subject to fees. You should also keep in mind your own retirement goals and savings status. If you want to put money back in your account, it will be subject to the same annual contribution limits as normal. There may be differing rules for employer-sponsored 401(k) plans. 

Consulting a professional can help you make the right decisions when it comes to withdrawing from or contributing to your IRA. If you’re located in Ford City, PA, turn to the team at Armstrong County Building & Loan Association. For over 90 years, this premier banking institution has provided a variety of financial services, including savings accounts and mortgage loans with competitive rates. Give them a call today at (724) 763-7137 to speak with one of the bankers about your needs. Visit them online for more information about their products and services.