so with the tuition increase, mandatory insurance, and two of my classes only available online (with their own set of tuition and fees) going back to school this year to finish up is a little more expensive then I was expecting. i've already borrowed a little and i've got savings to get me through a lot but even with a part time job it won't get me to may. one thing i am considering instead of another loan is pulling 2-3 grand out of my traditional IRA.

to make this decision what do i need to be weighing, just the earning potential of that money vs the interest of the loan? am i missing anything? i realize i'll be taxed on it but i've already contributed a lot of taxes this year and with returning to school i'll probably be owed a large return (and my tax rate now is lower than it would be later on anyways).

am i missing anything

8/12/2010 12:46:36 PM

One thing is that if you are even late on a single payment on the loan then there are huge penalties associated with that.

I seem to remember that there is a limit to the number of times you can do this as well.. plus I think there might also be a limit to the reasons in which one can take out such a loan to pay, but I can't remember for sure about that either.

I'd look it up online (what I did) and decide for yourself - I just remember quickly deciding that even though I needed money BADLY at the time for all sorts of things that it wasn't a good idea.

8/12/2010 1:37:46 PM

Would the payments on the loan be deferred?
Is it a public loan?
How low is the rate?
Is it fixed?

Those last two questions are probably the biggest factors.

8/12/2010 3:46:25 PM

you can withdraw your contributions tax free at any time (they've already been taxed)

any earnings you withdraw will be taxed, however

8/12/2010 4:17:16 PM

never dip into your saving until you're retired.

that said, act like you don't have that money.

Use your brain to generate more income doing less work.
Use more work to generate more money.

Whatever works. but never take out of your savings.

8/12/2010 4:28:18 PM

Quote :

"you can withdraw your contributions tax free at any time (they've already been taxed) any earnings you withdraw will be taxed, however"

traditional ira not roth

Quote :

"I seem to remember that there is a limit to the number of times you can do this as well.. plus I think there might also be a limit to the reasons in which one can take out such a loan to pay, but I can't remember for sure about that either."

i'll have to check on the number of times but you can pull out of an ira for higher education or buying a home (and maybe others)

Quote :

"Would the payments on the loan be deferred? Is it a public loan? How low is the rate? Is it fixed?"

if i had to get another loan it would be a private loan at probably around 6-7% and i would probably need to defer payments (but could make payments as soon as i graduate in may)

Quote :

"that said, act like you don't have that money. Use your brain to generate more income doing less work. Use more work to generate more money. Whatever works. but never take out of your savings."

well i've cut back everywhere i can with regards to spending and have saved a few thousand dollars this year doing that. that was part of my savings prep to go back to school.

but why not pull out, if the interest is higher than the earning potential wouldn't it make sense?

8/12/2010 6:17:49 PM

Quote :

"one thing i am considering instead of another loan is pulling 2-3 grand out of my traditional IRA."

Why? I'm no genius with finances but if a second pt job isn't viable then I would first look at taking out private student loans from banks and other sources rather than dipping into IRA funds. Typically you won't have to make payments until after your loan period has ended (typically 6 months after estimated graduation).

ECSI and Citi Student loans may be useful resources.

8/12/2010 7:08:51 PM

Quote :

"The amount will be exempted from the early-withdrawal penalty if you meet one of the following exceptions: -You plan to use the distribution towards the purchase or rebuilding of a first home for yourself or a qualified family member (limited to $10,000 per lifetime). -You become disabled before the distribution occurs. -Your beneficiary receives the assets after your death. -You use the assets for medical expenses for which you were not reimbursed.* -Your distribution is part of a SEPP program. -You use the assets for higher-education expenses.* -You use the assets to pay for medical insurance after you lose your job.* -The assets are distributed as a result of an IRS levy. -The amount distributed is a return on non-deductible contributions. "

Withdraw away.

8/12/2010 7:17:11 PM

i already know i can pull out without penalty for higher education, i'm just trying to decide if i should

Quote :

"Why? I'm no genius with finances but if a second pt job isn't viable then I would first look at taking out private student loans from banks and other sources rather than dipping into IRA funds. "

with a private loan i'm looking at about 6-7% right now and i'm not earning near that with the ira. am i missing something? my contributions were all employer matched so i feel like it would be a good way to take advantage of some "free" money but i feel like i'm missing something because everyone says don't touch it. i'm looking for someone who knows about this that can explain, "why not"

8/12/2010 7:24:42 PM

People say not to touch it b/c if you take out another loan, human nature says you'll work harder to pay it back than you would to replenish your IRA if you withdraw from it, simply because you are obligated to pay back on a loan.

But, from a strictly financial perspective, withdrawing from your IRA will cost you less IF you replenish it like you were paying off a loan.

[Edited on August 12, 2010 at 7:44 PM. Reason : .]

8/12/2010 7:39:55 PM

Quote :

"People say not to touch it b/c if you take out another loan, human nature says you'll work harder to pay it back than you would to replenish your IRA if you withdraw from it, simply because you are obligated to pay back on a loan. "

nah, human nature is to forget you made a risky decision 2 months later, get lazy, miss a payment, and end up paying huge fees

banks make tons of money off this kind of human nature

8/12/2010 8:43:06 PM

spend your money on cocaine and hookers fool

you could die an untimely death and that education wont mean shit

8/12/2010 10:29:55 PM

Quote :

"with a private loan i'm looking at about 6-7% right now and i'm not earning near that with the ira. am i missing something? my contributions were all employer matched so i feel like it would be a good way to take advantage of some "free" money but i feel like i'm missing something because everyone says don't touch it. i'm looking for someone who knows about this that can explain, "why not""

Yeah, right now you aren't earning 6-7% in your IRA, however on average the market returns 10% a year, so sure, this year you may be a down a little, but last year the market returned about 30%. Also, the interest on your loan is most likely tax deductible so that could potentially turn a 6-7% loan into a 4-5% loan. Even with below average returns you should be able to beat this % with long term investments within the IRA.

8/13/2010 10:14:14 AM

Quote :

"well i've cut back everywhere i can with regards to spending and have saved a few thousand dollars this year doing that. that was part of my savings prep to go back to school. but why not pull out, if the interest is higher than the earning potential wouldn't it make sense?"

It is great that you saved a few thousand for school, but now you have to save to survive after May. Time is money, so if you spend your savings, you're still going to spend time replacing money you already saved.

To differentiate yourself from the rest of society, instead of shaving expenses to make due, try to make more money. There is no limit to how much money you can generate, but there always exists an absolute limit to how much money you can maximally save. Aim high with your income and save maximally, and you'll be out of your predicament in no time.

8/13/2010 10:34:55 AM

Confucius say, who need bother with interest rates and loans? Solution simple: Make more money!

8/13/2010 11:56:07 AM

GeniuSxBoY never said it was simple

i respect his entrepreneurial spirit

8/13/2010 12:32:17 PM

Quote :

"Even with below average returns you should be able to beat this % with long term investments within the IRA. "

but i haven't beat it lately, hell it wasn't long ago where it had a negative return

^^that was basically my reaction

[Edited on August 13, 2010 at 1:12 PM. Reason : .]

8/13/2010 1:06:33 PM

The fact you haven't beat it lately is all the more reason to keep the money in your IRA.

8/13/2010 2:23:24 PM

you cant borrow money for retirement

leave the money alone & get creative

8/13/2010 2:29:55 PM

Quote :

"Yeah, right now you aren't earning 6-7% in your IRA, however on average the market returns 10% a year, so sure, this year you may be a down a little, but last year the market returned about 30%. Also, the interest on your loan is most likely tax deductible so that could potentially turn a 6-7% loan into a 4-5% loan. Even with below average returns you should be able to beat this % with long term investments within the IRA."

Is the winner of this thread. Not only that but you have to take into account all the compound interest that money would generate in the IRA. Don't do it.

8/13/2010 2:46:19 PM

but the loan has compounding interest too, and at a higher rate


haha just checked the ytd performance: -3.54

[Edited on August 13, 2010 at 3:04 PM. Reason : .]

8/13/2010 3:01:28 PM

Yes, and since you plan to retire this year....

8/13/2010 5:19:03 PM

even the 10 year return is only 6%

[Edited on August 13, 2010 at 5:28 PM. Reason : but thats not why i posted it]

8/13/2010 5:28:03 PM

How about those funds returns from the previous decade?

8/13/2010 5:38:09 PM

Get a credit card doing a promotional 12 month 0% APR promotion??

8/13/2010 8:47:02 PM

yeah thats a terrible idea

8/13/2010 9:06:52 PM

Quote :

"but the loan has compounding interest too, and at a higher rate"

The interest on that loan isn't going to compound for 40 years though. Play around with this calculator and see how much that 2-3k is going to affect the balance of your retirement fund at age 65.

http://dinkytown.net/java/InvestmentReturn.html

8/13/2010 11:30:42 PM

but really i'll just be losing a couple years on that money as i can pay it back into my ira when i start working again. the same could be said for the loan, that i could pay it back quickly, but what i like about paying back into the ira instead is that if i'm in a worst case scenario i don't have to worry about penalties and default rates.

i don't mean to sound like my mind has been made up, i'm just trying to offer a counter opinion so i can really flesh this out

[Edited on August 13, 2010 at 11:47 PM. Reason : ^i setup an excel sheet to do my interest calculations]

8/13/2010 11:46:33 PM

Quote :

"but really i'll just be losing a couple years on that money "

A couple of years could easily mean thousands of dollars lost.

Quote :

"i can pay it back into my ira when i start working again."

Not really. There's a 5K cap on IRA contributions so it's not like you can just make up the money taken out, unless of course you had planned on only contributing a few k to retirement each year which would be a very unwise decision.

8/14/2010 12:46:34 AM

There is some strange advice in this thread.

Bottom line, if you aren't working you'll be in a super low tax bracket this year and you won't get penalized if you use the money for qualified education expenses.

So assume you take out $5k you'll get taxed at 15% thats only $750 in taxes, most likely you will not be in a super low tax bracket in retirement because our nation will be so entrenched in debt when we retire that the gov't will screw everyone who has retirement savings. One thing they plan to do is drastically reduce your Social Security payments based on your investment income in retirement (they already do this now, but it will get worse soon now that social security is paying out more than it takes in 2010 ((this was not expected until 2017)))

The other thing to consider is the market will probably return ~4-5% annualized over the next 7 years based on its high valuation now and the fact the economy is slipping back into recession.

Your loan interest you stated is about 7% which is higher than that.

Pull the money to pay for the education expenses and when you start making money again be diligent about saving for retirement again to make up for the money you pulled.

The other benefit is that when you replace the money in your IRA you will be in a higher tax bracket and benefit from greater tax breaks. I'm assuming you'll at least be in 25% tax bracket if not 28-33% and since tax rates will go up in the near future you may benefit from even greater tax deferral.

8/14/2010 11:33:22 AM

Then why not take the loan and then convert the IRA to a roth IRA?

8/14/2010 4:42:26 PM

that is a feasible idea, convert as much as you can up to the 15% income tax threshold and then take a loan instead.

8/15/2010 1:25:23 AM

I wouldn't touch your retirement accounts for any reason other than retirement.

8/15/2010 7:45:15 AM

basically here is what i did. i looked at the interest from the loan and the interest from the ira. then i found the future value of the interest for a few years of the ira to determine how much pulling out that money for awhile will affect the value in the future. it of course depends on returns but using historical returns for the fund it will cost me a couple thousand dollars (at the time of my retirement) to use this money. now i'm still not sure thats a deal breaker, it does cost me more but it moves the burden to a time when i could hopefully absorb that cost better than now or immediately after graduating. i think i've got enough now to set a meeting with my financial adviser.

8/15/2010 2:11:39 PM

Hindenburg Omen just kicked in. Might as well withdrawal before your saving drop another 5-10%.

8/15/2010 9:11:37 PM

Had to look it up.

http://www.thestreet.com/story/10836670/1/hindenburg-omen-what-a-stock-market-crash-would-mean-for-the-consumer-sector.html
http://en.wikipedia.org/wiki/Hindenburg_Omen

Quote :

"i found the future value of the interest "

Quote :

"using historical returns for the fund"

Please tell me you are using more data than just the short period of time you've been in these funds.

Quote :

"i think i've got enough now to set a meeting with my financial adviser"

8/16/2010 11:21:25 AM