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.

  • Why would you sacrifice retirement in favor of kid's college? The only time this would be viable is when you have way more than you actually need.
    – Pete B.
    Nov 1, 2016 at 18:33
  • Because we have more than adequate retirement savings. Nov 1, 2016 at 19:00

1 Answer 1


Your understanding is correct, based on my interpretations of the relevant IRS publications. In particular:

You can claim an education credit for qualified education expenses paid by cash, check, credit or debit card or paid with money from a loan. If you pay the expenses with money from a loan, you take the credit for the year you pay the expenses, not the year you get the loan or the year you repay the loan.

This means that "paying for" something is considered to occur when the payee (the school) receives funds from the payor (you) regardless of whether you incur a debt (credit card, HELOC, etc.) or pay with liquid funds (cash).

Qualified Education Expenses

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