They'll still have to pay a capital gains tax but at a potentially lower rate. Not only will you have to pay taxes and if you’re under age 59 1/2, possibly a 10% penalty on the withdrawal, but you can't pay that money back so it will permanently reduce your retirement savings. You can get around this by paying the school bills directly since the gift tax doesn’t apply to direct payments to educational institutions. After all, if you don’t provide any money, it doesn’t mean that you don’t love your child or want them to go to college. But if you don’t have enough savings in retirement, good luck finding someone willing to loan you the difference.

Source: Forbes August 03, 2021 13:52 UTC