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Can one take a distribution from a traditional IRA to pay…

Can one take a distribution...
Can one take a distribution from a traditional IRA to pay for a dependents college tuition without incurring the 10% early withdrawal penalty?
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Answered in 11 minutes by:
12/22/2017
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,507
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. my name's Lane.

...

Yes, distributions from an IRA before the participant reaches age 59 1/2 are normally subject to a 10 percent early distribution penalty in addition to ordinary income tax. However, if the participant uses the money to pay for qualified higher education expenses, the 10 percent tax penalty will be waived.

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Qualified higher education expenses are the same as for 529 college savings plans. They include tuition, fees, books, supplies, equipment and special needs expenses. They also include room and board, if the student is enrolled on at least a half-time basis.

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The qualified higher education expenses must be for the education of the taxpayer, the taxpayer’s spouse, or the child or grandchild of the taxpayer or the taxpayer’s spouse at a college or university that is eligible for Title IV federal student aid. Qualified higher education expenses for foster children and adopted children are also eligible.

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The penalty waiver for early distributions applies to all individual retirement plans, including traditional IRAs, SEP-IRAs, Roth IRAs and SIMPLE IRAs.

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Note that IRAs do not permit plan loans, unlike 401(k) retirement plans. On the other hand, IRAs permit penalty-free early distributions for qualified higher education expenses, while 401(k) plans do not.

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And there are no income phaseouts here either.

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Here's the IRS guidance on this:

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https://www.irs.gov/retirement-plans/plan-participant-employee/retirement-topics-tax-on-early-distributions

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But again, if you need more on this, please let me know.

Lane

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 13,507
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Lane
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Category: Tax
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