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HI. My name is ***** ***** I will be happy to help you.
Can you be more specific what you mean with "higher education exemption". Do you mean exemption from early distribution penalty (10%)?
Distributions from Defined benefit plan or other employer sponsored plans don't qualify for the exemption. What your friend needs to do is to open IRA (Individual retirement account), do direct trustee to trusty rollover from the defined benefit plan into IRA and when the times comes, your friend can use the funds to pay for the child's college. Here's IRS table with exemptions:
To do hassle free rollover, your friend needs to make sure that the money are transferred between institutions without him/he receiving check or any distribution.
The rollover will not be included in taxable income in 2015 and when the funds are used to pay college expenses, the distribution will be included in taxable income, however most of it, if not all will be offset by education credits.
Can you see my second respond? Only distributions from IRA qualify for the higher education exemption.
You're welcome. Not all retirement plans are treated the same way. Is there anything else I can help you with today?
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