Paying for college with IRA

I'm retired early (disability) and trying to find a way to pay for my kids college without doing myself long term financial harm. I want to know if I've come up with a good idea or a bad idea.

I understand that you can use IRA withdrawals to pay for college. No early withdraw penalty. Taxes on Traditional IRA withdrawals.

I want to use PLUS loans to pay for my daughter's college, then withdraw money from an IRA to invest in Bonds to repay the PLUS loan. I end up with no loss of cash, just a shift from IRA investment to non-IRA investment.

For example: if my PLUS loan is $7,000, my 120 month payoyut is about $70 per month. I could take $7000 from IRA, buy a bond at 6%, and have $420 income for the year versus $840 outgo. I could pull the other $420 from Coverdell and 529 plans.

Since I retired 17 years before planning to, my Coverdell and 529s weren't as big as needed. But my IRA is good. I'd still have the $7000 each semester, just not in the same type of account.

Legal? Not well thought out? I need to know, so please advise.

Thanks ...

I don't think you can do what you want to do. I believe the IRA withdrawals have to be in the same tax year as the college expenses were incurred to qualify.

See IRA Publication 970's section on IRAs and higher education funding.

Hope this helps.

TJ

You might want to think twice before tapping your own retirement funds to pay for your kids' college. You're retired. So if your only income is from disability (I'm assuming), will you have a big enough nest egg to see you through your retirement? Especially since it's going to be longer than you anticipated?

There are loans for college but not retirement, so take care of your needs first. There is nothing wrong with your kids taking out a student loan to pay for their education. They're actually a good deal right now. And after they graduate, if you decide you can afford it, you can always help them with payments.

Right on punchbowl! I had to finance my own way through college and I have learned valuable lessons of "you don't take advantage of things you have to pay for out of your own pocket" ,and I have also helped to establish my credit by paying my school loans on time. Why deny your kids these opportunities? They will become more independant and will be less likely to fly back to the safety of the nest if they learn how to manage their own financial lives sooner than later. You can always lend a helping hand, or sweeten the deal by paying off the balance of their loans for graduating on time or with a certain GPA. Sounds like encouragement to me :-)