Should I take money out a retirement account to pay for school?
Posted by Dolores
momofkings asked:
I’m a homeschooling mom of 7. Our budget is very tight and with the recent gas prices driving up the cost of living, we’re really struggling. I’d like to get training as a medical transcriptionist so that I can work from home, around my schedule. I do have a job lined up after I get training.
I’m a homeschooling mom of 7. Our budget is very tight and with the recent gas prices driving up the cost of living, we’re really struggling. I’d like to get training as a medical transcriptionist so that I can work from home, around my schedule. I do have a job lined up after I get training.
In order to pay for school, we’d have to cash in my husband’s retirement plan from an old job. There’s not a lot in it, but just enough to pay for the school and buy me a new computer and desk to set up a home office away from the kids. Do you think this is a good decision? We really don’t have the money for a loan.
We usually get a ton of money back from the IRS since we have so many kids, so I’m not worried about oweing in April.
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May 23rd, 2009 at 3:59 pm
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Tapping into retirement savings should almost always be a last resort.
If the retirement plan is a 401(k), see what kind of loan provisions there are with the plan. If that doesn’t work, or the retirement account is a traditional IRA, you will be looking at paying tax on the w/d and possibly a 10% penalty as well.
I would suggest you speak with a CPA regarding the tax consequences, and explore all other options before tapping into retirement savings.
May 25th, 2009 at 5:11 pm
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If it is your only option. Just remember, you face some tax consequences at the end of the year. Depending on you and your husband’s income and the amount of the retirement income, you could take a hit. You will automatically have an early withdrawal penalty. For more details, I would contact whoever prepares your income taxes. If you do them yourself, call a local HR Block and they should be able to help.
May 27th, 2009 at 11:45 am
retirement
It may be tempting to tap into that 401k, but don’t do it. First, you’ll get hit with penalities that maybe up to 40%. Second, try to come up with some creative solutions. For example, would a company pay for your training in exchange for a low starting salary. Maybe a company would hire you for 50% the normal rate for a certain period of time as long as you agree to work for them.
It sounds like the principal question your asking is how can I make money from home and still raise/train my children. If this is the case, then consider other alternatives that don’t cost much money.
For example:
1) sell stuff on ebay
2) write a book about homeschooling. it could be an ebook that people purchase from a website.
Also, what can your husband do to increase his income? Could he get a second job? Increase his skills or switch jobs?
BTW, we homeschool too (3 kids).
I hope this helps.
Scott…….
May 29th, 2009 at 4:39 am
retirement
If there is any other way to do it, do it that other way. Retirement accounts have large penalties for cashing out early, and earn a great deal of compound interest if not cashed in early.
June 1st, 2009 at 1:36 pm
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Investing in your skills is one of the best investments a person can make, especially of those skills can pay off with a higher salary down the road.
Consider what you’ll be making as a medical transcriptionist vs the cost of the training. For example, if you were to invest $5,000 in your skills and that can lead to making $25,000/yr part-time and your pay now is $0, then it’s a no-brainer, you’ll be well ahead of your investment in a few short months.
I agree that taking money out or borrowing from a 401k should be near the last resort for raising funds. If that were the only option, then I’d recommend borrowing over withdrawing to avoid the tax penalty and then you. However, that does mean that you’ll have a payment that will **** down some of your cash flow. But, I feel better about pulling money out of retirement if I’m using it to invest in something that’s going to generate more money for me in the future (like an education). That’s much different than using it for a boat or car.
Have you checked into whether you’d qualify for a student loan? The repayment terms on those can be very nice and you can often delay repayment until after you’ve acquired your skills and are earning money. Does the school offer any type of assistance?
Good luck and I hope this helps.
June 4th, 2009 at 4:28 am
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You may have gotten a ton of money back from the IRS in the past (with you not working), but your new income (when added to the income of the 401k cash-out) may put you in a new tax bracket that will cause you to owe.
The taxes and penalties on a 401(k) cash-out are steep - 10% penalty AND income taxes up to 35% (based on your income this year). I would definitely look at other options before cashing-out a 401(k). Could you get a part-time job until you saved enough cash to get your training and a (used) computer?
I understand how it is, as I homeschool our two boys (can’t imagine doing 7!!!!) I wish you the best, whatever you decide to do.