I have a question... I am on H1 visa and My wife on h4 visa wants to study for masters next year...

>>Can I use my 401k with no penalties for my wife
>> Can I invest in IRA Roth and widhraw for her tution fees?

>> Or just pay from my pocket and seek deduction for next year taxes?

Whts the best planning

Whts the best solution?

We would need to know your income levels before doing any analysis.

The answer to your first question is no. College tuition for your spouse is considered a "hardship" with respect to making a 401(k) withdrawl - which means you ought to be able to withdraw from your 401(k) to pay tuition - BUT you would still have to pay the 10% early withdrawal penalty (I'm assuming you are under age 55).

Distributions from an IRA for higher education expenses DO qualify for an exemption from the 10% penalty. So if you can roll your 401(k) to an IRA, then take a withdrawal from there, you would avoid the penalty. However - this would be a roll over to a traditional IRA, NOT a Roth IRA. Also, this assumes that you are no longer an active employee where your 401(k) is located. If you are still employed there, you would not be allowed to roll your 401(k) to an IRA.

In general, if you can afford to pay the tuition out of your savings without having to raid your 401(k) or IRA I think that's the best altenative. If not, then you should consider a loan - either a tuition loan from a traditional lender like a bank, or perhaps a loan from your 401(k). Sacrificing your retirement savings should be a last resort.

Am from Texas.. Just Married on Dec 2009, total income - 55k/yr. Only one income per family. Age 26