While you CAN take money out of your IRA to cover your tuition, the decision to do so depends on your circumstances. In general, if you take a distribution from an IRA before reaching age 59 ½, it will be subject to a 10% early withdrawal penalty and ordinary income taxes. But because you plan to use this IRA money to cover grad school expenses, you may qualify for an exception to the 10% penalty. Keep in mind, however, that you still have to pay income taxes on the amount you withdraw.
Generally, however, it is not advisable to take money out of your IRA. By doing so, you will take your savings away from investment and miss out on investment income. You can also take out student loans and use your future income to pay it back. With an IRA, however, once you withdraw the money, you cannot put it back into the account. Future contributions are subject to the annual contribution limit. It may take you years to catch up on your IRA savings.
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