AboutGlenn D Schnabel Expertise I can answer most federal individual income tax questions.
I can not provide legal advise.
Experience I have worked for a CPA firm for over 11 years.
I have worked in private as well as government
I have recently been running a tax preparation office, mainly focusing on
individual income taxes
Organizations I have been affiliated with managing condo associations and as a member of a coalition to educate condo owners as to their rights and responsibilities.
Education/Credentials I have my B.S.B.A in Business Administration . Concentration in Accounting
I have gone to yearly tax seminars and have tried to keep up with the
evolving tax changes
Awards and Honors Over my years I have received local awards for contributions to worthy
organizations.
Past/Present Clients This, of course remains confidential
Expert: Glenn D Schnabel Date: 7/7/2008 Subject: Withdraw money from IRA
Question My ex-husband used teach in the US ten years ago. He still has his TIAA account in the US after he moved oversea and gave up his US Residency. Now he likes to use the fund to pay for our daughter's college tuition in the US. I have following questions:
1. Does he need to pay the Federal Income Tax for the money that he plans to take out even he is not a US resident anymore?
2. Is it true that it is best for him to rollover his TIAA to Traditional IRA before taking out the money (I fond this when I search the net)?
2. He said he likes to transfer the money to me and let me pay the tuition when it is needed. Will I be able to claim my daughter's college expense to lower my income tax if we do it this way?
3. Can I transfer the money to third party and let them pay the tuition. Can it work this way?
4. How about 10% penalty applying to the above questions?
5. In your opinion, what is the best way for us?
Answer Diana,
Thank you for your questions.
1. Does he need to pay the Federal Income Tax for the money that he plans to take out even he is not a US resident anymore?
Yes, If he is has income earned in the US then he has to report his income from his retirement. The income he makes while overseas may qualify under the foreign income earned exclusion.
2) Is it true that it is best for him to rollover his TIAA to Traditional IRA before taking out the money (I fond this when I search the net)?
Yes, he can avoid the 10% penalty if the funds are rolled over to an IRA account and then taken out.
3) He said he likes to transfer the money to me and let me pay the tuition when it is needed. Will I be able to claim my daughter's college expense to lower my income tax if we do it this way?
He may be able to gift you up to $12,000 per year. Then you can do with it what you want. If you were still married transferring the funds would not have been a problem. Now you may have tax consequences.
If you are able to claim your daughter, if your income is not too high , you may be able to tale either a credit against your tax or as a deduction. This all depends on how much income you report in that year.
4) Can I transfer the money to third party and let them pay the tuition. Can it work this way?
No. Then you would lose your tax credits or deductions.
5)How about 10% penalty applying to the above questions?
See answer the question 2
6)In your opinion, what is the best way for us?
A) rollover the funds to an IRA account
B) Have your ex start gifting the funds. He can probably gift you and your daughter per year
C) use the funds to pay your daughters tuition and get a tax credit or deduction.
Unfortunately, he will have to pay taxes on the distributions from the retirement account.
