Hi,

I'm not a fan of that strategy at all. Why not take advantage of the fact that you can borrow money to pay for 100% of your medical school expenses? When you've completed med school, take a look at how much you owe in loans, what your 401k is worth, and what your expected income will be, and decide at that time whether to liquidate your retirement accounts to pay down some of your loans.

When you withdraw money out of a 401k plan to pay for college expenses, you'll owe federal taxes, state taxes, and a 10% early withdrawal penalty to the IRS as well. So even if you're in the 15% federal tax bracket, you'll still be paying 30 cents on the dollar to the IRS to use your 401k money to pay for your med school tuition.

If you've already decided to take money out of your 401k account to pay for your med school tuition, here's a suggestion that will save you thousands of dollars in taxes. First roll the money from your 401k into an IRA. Then withdraw money from your IRA as you need it to pay for med school. According to the IRS in their instructions to Form 5329, "IRA distributions made for higher education expenses" are exempt from the 10% early withdrawal penalty.

So posting your question on this Message Board might have saved you $8,500 in IRS penalties.

Zip Code: 01801

Thank you. The Form 5329 advice will come in very handy if I need to make a withdrawal.

Best regards,