Cashing in the 403b

[cheezer]

Anybody cashed it in to pay for school?

Does it essentially count as income for that year? If so, then if it represents your only income, will most of the tax penalty come back to you in the return?

Anyways, I'm thinking of doing it and I'd appreciate it if someone could provide some insight.

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[2008orbust]

I will also be dumping for tuition. I will need to dump to pay for years three and four, but mine is a 401K. I am pretty sure that I will have to pay taxes since it is a pretax account.

 

[njbmd]

Moving to Finance Forum for discussion.

 

[whatintheworld?]

Why cash in? I have a 403b and I'm not cashing it in... just taking loans. I don't know a ton about financial stuff, but I am pretty positive that you will face some big tax penalites if you do cash it in. Not worth it to me. Mine will just quietly grow in an IRA for now.

 

[whatintheworld?]

Also I would think that the tax penalty that you would pay for cashing out on your 403b would not be eligable for a tax refund. When you cash it out I think that you pay back taxes on that money (since it was taken out pre-tax) and then pay a penalty fee for cashing it out early and then pay capital gains tax on the amount left over that you are pocketing. Whether or not there are special allowances out of these for educational expeses, I do not know.

 

[Sol Rosenberg]

I am considering taking money from my 401k, if I need it, but I will exhaust all other options (Stafford Loans and possible GradPlus Loans) before doing so. The interest rate on Stafford Loans is 6.8%, and I've generally done better than that with my 401k.

Also, I believe there is a loophole that you guys can exploit. I think that you can take up to 20k/year out of a traditional IRA with no penalty if you are a full-time student. You can then roll your 401k/403b into a traditional IRA, and be on your way.

I have to search the IRS site for the pub., and will post a link here, but I'm pretty sure that that's the deal.

 

[cheezer]

i'm having trouble obtaining loans at the moment (appealing the decision right now) and basically need the total cash in my account to finance the year. but yes, i agree that exhausting all other options is best. unfortunately, if finaid doesn't come through, i think i have to do it.

 

[Sol Rosenberg]

Forgot to post this before:

http://www.irs.gov/publications/p970/ch09.html

So, if you roll the 403b into an IRA, you can withdraw money for qualified education expenses with no penalty (you do need to pay income tax on the disbursements, however.)

 

[cheezer]

thanks, i appreciate it.

one last question for you or anybody else: good iras?

 

[cheezer]

scratch that i'm just going to open one with the same place as my 403b

 

[Jocomama]

Yes - keep it simple
With money, as Drs we overcomplicate. There is no need to do this.
Having your both retirement options at the same venues, broker/manager, etc is fine.

scratch that i'm just going to open one with the same place as my 403b