Can I Withdraw Money From My Retirement Plan for Postgraduate Courses?

Yes. You can withdraw money from your retirement plan without penalty for postgraduate courses. But understand that doing so may impact your retirement plan and financial goals.

I received this question over the weekend:

“Mike, I had asked you previously about withdrawing money from our retirement plan. You responded that with all the penalties and obvious disadvantages to withdrawing early, it would not be in our best interest. I am considering going to graduate school and was told that there wasn’t a penalty for withdrawing early if it was for educational purposes. Would this make a difference based on what the money would be used for?”

This was my response:

I would encourage you to review the rules regarding this with your tax preparer.

The law lets individuals receive distributions from their qualified retirement plans (including IRAs, Roth IRAs) to pay higher-education expenses without incurring the 10% early withdrawal penalty that usually applies to withdrawals from an IRA before age 59 1/2. (The regular income tax on the distribution still applies.)

The penalty-free withdrawal is available for “qualified higher education expenses,” meaning tuition at a post-secondary educational institution, as well as room and board, fees, books, supplies, and equipment required for enrollment or attendance. Expenses for graduate-level courses are also covered.

The expenses can be incurred by the IRA owner, his or her spouse, or any child or grandchild of either spouse. There is no requirement that the child or grandchild be a dependent of the IRA owner.

Using retirement plan money for this type of expense is really a personal decision. Since I’m not familiar with your personal financial situation, it is difficult for me to comment on your situation specifically.

Generally, I would encourage the use of funds outside of those set aside for the goal of retirement for this purpose. But if it is the only means for reaching other financial goals then just be sure to educate yourself on the tax consequences of taking this action.