Solo Roth 401k To Pay for Your Daughter’s College

There are different options that you can choose when financing your daughter’s tuition fee with Solo Roth 401k.

solo roth 401k
solo roth 401k

We all know how expensive going to college is. Aside from the high tuition, you also need to set aside funds for expenses such as lodging, medical expenses, transportation and other similar affairs. If you are a Solo Roth 401k account holder, your worries could be lessened as there are options to help you fund your daughter’s college education.

Your Roth Solo 401k can provide the financing to pay for your daughter’s college. If you are 59 ½ years old, and your Solo Roth 401k account has been set up for at least 5 years, you can make withdrawals or receive qualified distributions without worrying about taxes or penalties. If you don’t meet the qualifications mentioned, the next available option for you is to make an early withdrawal from your Solo 401k retirement savings.

Qualified education expenses is penalty-free for early withdrawal

Making an early withdrawal from your plan means you are receiving a non-qualified distribution, which is subjected to a 10% tax on the earnings from your contribution. However, since the fund will be used for higher education expenses, the additional 10% tax or the penalty will be waived. This is because qualified education expenses are one of the exemptions that IRS mandated to qualify for a tax-free non-qualified distribution.

If none of the above options work for you, there is another option with a Solo 401k plan. You can practice the participant loan feature and borrow money from your retirement fund. You can receive a loan equivalent to half of your account’s total value with a maximum borrowing limit of $50,000. There is no explanation needed to take out the loan because the money you borrow from your Roth Solo 401 k can be used for any purpose. Further, a Solo 401k loan comes with lower interest rates, prime rate plus 1%, allowing you to avoid higher interest payment on education loans.