My daughter was the beneficiary of an inherited IRA from her grandfather over 10 years ago when he passed away. He -- and we as parents -- fully intended for these funds to be used for college tuition expenses (as it happens, private tuition). Our daughter is 20 and remains our dependent. We fully planned for tuition to come from these resources, even though we are supplementing with a 529, which will cover 2 of her 4 years. The question is, how do we minimize her tax burden on the IRA distributions since we are in a 32% tax bracket? She is heavily penalized by the IRS by our income level (kiddie tax!), and the college heavily penalizes her given the IRA assets in her own name. What is the most tax strategic way to distribute her IRA? It seems very challenging... I know we are in a fortunate situation, but this directly pits my own retirement against her insane college tuition.
