Finance med school with 401k loans?

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Have any of you nontrads financed your med school tuition with loans against your 401k or maybe even cashed your 401k somehow penalty free?
I know there are some clauses that allow these sort of things for 1st time home purchase or hardships/etc. Just curious if anyone has done it and if so to what limit?

Originally Posted by LoLCareerGoals

Have any of you nontrads financed your med school tuition with loans against your 401k or maybe even cashed your 401k somehow penalty free?
I know there are some clauses that allow these sort of things for 1st time home purchase or hardships/etc. Just curious if anyone has done it and if so to what limit?

I'm pretty sure you can withdraw from an IRA for higher education expenses penalty free (up to the cost of attendance: http://www.irs.gov/publications/p970/ch09.html), but not a 401k. Since I rolled my 401k over into an IRA after I quit my job, this is something I've been considering, especially since they did away with the subsidized loans.

I know minimizing debt is an overarching theme on this forum, but I'm not a finance guy by any stretch of the imagination, and so I'm not sure whether it is better to come out of med school with little/no debt and no retirement funds, or to keep the retirement funds and take on the debt (it's "good debt").

Only if your 401k is earning less than 6.8% interest. Otherwise, you are burning the candle at both ends.

Keep in mind that if you're taking funds out of a pre-tax retirement account (traditional IRA) you will have to pay taxes on the distribution.

Originally Posted by Slev

Keep in mind that if you're taking funds out of a pre-tax retirement account (traditional IRA) you will have to pay taxes on the distribution.

But wouldn't you then offset that "income" with huge educational expenses? You job income is zero, your med school tuition is deductible or is even a tax credit (I don't remember). Sounds like a perfect way to pull out taxable funds tax free. Also what magical funds is your 401k in to be making 6.8% consistently (15 years+, short term I've had hot streaks too).
Granted you give up decades of tax free accumulation there, but loans accumulate interest too. I could spreadsheet it and do the math when the time comes, I was more interested if it was legally possible and if it was done by any of the nontrads since we are likely to have a sizable 401k.

You are right that your tax bracket might be very low while in school and tuition deductions can help offset some of the potential tax burden. If you are single and don't have a spouse earning income then you can probably make the tax you would owe pretty negligible.

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Keep in mind that most places will take the projected taxes out of the disbursement up front and you'll have to wait until you file to try to get some of it back. Honestly, I think your best bet would be to find a financial adviser and go over the idea. I'm thinking the hundred bucks or so they would charge you for an hour of their time would be well worth it in the long run.

I cashed out about $7,000 from my 401K toward the end of my M3 year (to pay for M4 interview season, usmle, etc). I had to pay the early withdrawal penalty upfront, but being in the bottom tax bracket, I didn't really have to pay any income tax on it and I got a refund which was pretty nice during my M4 year.

I doubt you can get around the fee - if so, it'd be common knowledge since you're not the first person with a 401k going back to college/grad school.

Originally Posted by yossarian444

I doubt you can get around the fee - if so, it'd be common knowledge since you're not the first person with a 401k going back to college/grad school.

You roll your 401k into an IRA is how.