Ask Mary Beth: Money Q & A

I will reach age 59 1/2 this summer. I have several IRAs in place and I am thinking about withdrawing from one account to pay college tuition for my daughter. At the same time, I am thinking about paying off some other debts. What are the tax implications under the 1997 Taxpayers' Relief Act?

Mary Beth answers:
Once you reach 59 1/2 you will be eligible to withdraw money from your IRAs without penalty, but you will still be required to pay income taxes at your regular income tax rate on any money you withdraw.

The new tax law removes the 10 percent penalty for early withdrawals from IRAs to pay for college tuition, but income taxes are still due. Therefore, the new tax laws shouldn't affect your decision in any way.

However, if your time schedule requires you to withdraw funds before you reach 59 1/2, you could still escape the 10 percent early withdrawal penalty on the college tuition funds, but not on money withdrawn to pay off other debts.