I know that IRAs can be used penalty free to pay for qualified college expenses for our children. We are presently in the AMT range, causing an effective 35% marginal tax rate, and would like to avoid any additional income.
Could we defer withdrawing from the IRA until our income is out of the AMT, presuming our child(ren) are out of school, but still enjoy the penalty-free deduction?
My proposal is that we defer by borrowing (via home equity or other source) and pay it back when we're no longer subject to AMT. Would paying back a loan that was originally used to pay qualified tuition expenses qualify in a future year that our child isn't in college?
I expect that the only time the tuition expenses are eligible is when the tuition is actually paid, regardless of whether or not it was borrowed.