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10 Reasons Why People Cash Out IRAs Early


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Paying for College
IRA funds can be used not only to pay for college tuition, but also books and room and board. iStockphoto/Thinkstock
IRA funds can be used not only to pay for college tuition, but also books and room and board. iStockphoto/Thinkstock

The cost of college in America has skyrocketed over the past decade, with in-state tuition at four-year public colleges and universities increasing 104 percent, and tuition at private institutions jumping 60 percent. And that's not talking about the other college costs. The average sticker price of attending a private American college or university — tuition, room, board, books — was $43,289 for the 2012-13 school year [source: Clark].

Sure, IRAs are technically earmarked for retirement, but the IRS gives you a break to help pay for higher education expenses. Like the first-time homebuyer exception, the IRS waives the 10 percent early withdrawal penalty if you take out the money to cover any and all college expenses, including tuition, books, fees, and room and board if the student is enrolled at least half-time [source: IRS]. The higher-education exception is good for you, your spouse, your children and even your grandchildren.

Again, while the IRS waives the early withdrawal penalty, the normal IRA tax rules still apply.