Cashing in retirement to pay for school Forum

[Beestinga]

So, I currently work for the state of Texas and have for a few years. I'm a member of TRS and have ~$11k in my TRS (tax-deferred) account. I'm quitting my job at the end of July to start school. I'm married and my wife works. Our HH income is ~$90k (well, was last year. It'll be a little less than that since my wife is moving to a much better paying job and and I'm quitting mine all together).
I can do 1 of two things when I leave, and I wanted to get some input here.
1) Liquidate the account. Pay income tax on it. big payday. big taxday.
2) (and this is the one I'm giving some thought to) - establish a traditional IRA, roll the TRS money into there. Next year, when I'm not working at all, withdraw the money to use it to pay for 2L (From my understanding, I'll dodge the 10% penalty since it's for school, and our tax liability should be less next year).
3) ????

Any thoughts? Any creative solutions that I'm overlooking here?

[Tiago Splitter]

You have it right. Keep in mind the 20% mandatory withholding (which is penalized) if you take the money directly from the qualifed plan instead of directly rolling it to an IRA.

You also don't have to wait until 2L to withdraw from the IRA, just don't withdraw anything before January 1st of 2012.

[dood]

#2 is what i did with my 401K. rolled about $15K into IRA, cashed it out ("disbursement for education expenses"), traveled to europe, paid for extra expenses 1L year.

best part was when tax season came around, i had paid enough to cover it (i think i even got like $2000 back).

[fingersxd]

I'm considering doing the same. Is it generally agreed that dipping into a 401k (by rolling over to IRA) is TCR if you intend to use it for educational expenses? (Rather than just taking on more debt?)

[thesealocust]

#2 is what i did with my 401K. rolled about $15K into IRA, cashed it out ("disbursement for education expenses"), traveled to europe, paid for extra expenses 1L year.

best part was when tax season came around, i had paid enough to cover it (i think i even got like $2000 back).

That's badass. I tip my hat to you and your tax/financial planning good sir.