Early Roth distribution for education expenses
Can someone confirm?
I recently heard that expenses used to avoid the 10% penalty (ie on Roth earnings) cannot also be used for 1040 education credits or deductions. That seems surprisingly restrictive.
Thanks
Permalink Submitted by Alan Spross on Wed, 2011-04-20 02:19
What you heard is incorrect.
While there are several denial of double benefit provisions with respect to application of education credits and deductions, the early withdrawal penalty is not considered in any of them. The early withdrawal penalty does not affect taxable income, only the cost of accessing that income early. The various education credits are designed to offset the income taxes on income used to pay the expenses (plus other income in the case of credits).
Therefore, you can attach a 5329 to eliminate the penalty on the taxable portion of your IRA distribution if you have qualified higher education expenses. And you can also take the tax credits. What you cannot do is to use the same higher education costs to generate more than one credit or deduction.
Permalink Submitted by W Dobroski on Wed, 2011-04-20 17:29
Great! Thanks very much Alan