Full-time MBA with no scholarship is a HUGE financial decision, we all know it. But is there a way to use some of our retirement saving to fund this two-year venture?
I have to admit I know next to nothing about my retirement accounts and how to minimize tax and fees.
I have $40k in my 401K that I want to use to fund my MBA but would love to know what is the best way to do so. I heard that if you use IRA instead you will not get a 10% penalty for early withdrawal for higher education. Is this true? If so, then is there a way to transfer my 401k to IRA?
Also, when and how should take out the money? I assume I should take it out during the summer between my first and second year so I will be in a lower tax bracket? Does it work like this?
I don't plan to retire in America so I want to use my money now instead of letting it sit forever.
Cheers!
Interested as well.
You can rollover your 401(k) to an IRA to avoid the 10% penalty only if the withdrawals are used for qualified education expenses (tuition, fees, books, supplies). Sounds like this part wouldn't be an issue. Info on how to rollover your 401(k) can be found with a quick google search I believe.
I think you'll also have to file an additional form (Form 5329) with your tax return to report the qualified education expenses that allow you to be exempt from the 10% early withdrawal penalty. You will however still be taxed on these distributions as you would normal income. As you mentioned, it would be better to take the distributions after your first year as you'd likely be in a much lower tax bracket (likely 10%-15%). Hope this helps a bit.
"termination" from a previous employer is a triggering event for a distribution. At this time you can rollover your entire 401k balance into an IRA dollar for dollar. Once in an IRA you can use for qualified expenses such as education to potentially avoid a 10% early withdrawal penalty. See http://www.irs.gov/publications/p970/ch09.html. It should be noted that this will only qualify you for the 10% early withdrawal exemption. You will still be responsible for taxes on any earnings your 401k generated when you take these distributions to help pay for your MBA.
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