One more thought on taxes and IRA withdrawals for education. Let’s say you made the contributions while you were younger and in the 15% or 25% tax bracket. You made your contributions. You got your tax deduction from those contributions and you’ve been watching the account balance grow for a number of years.
Now, you’re a little older and paying taxes at the 30% or 35% range. Boom, you take a withdrawal for education that avoids the 10% penalty. Smack, the IRS takes 30% or 35% of your withdrawal, because that’s your current tax rate. Slap yourself on the forehead because you were expecting to be in the 10% tax bracket when you retired in several years.
Okay, so you saved 15% on your smaller contributions. You were taxed at 35% on larger withdrawals, and you avoided paying only 10% tax in retirement. Boy, that sure wasn’t very smart, was it?