Higher Education from IRA or 401k
Hello.
Client has old 401k from company no longer working for and a new 401k at current company, both with the same provider. She needs money for daughter’s college tuition. Can she distribute money from old 401k and avoid the 10% early withdraw penalty, or does she have to roll into an IRA?
Should she see about transferring old 401k to new 401k and taking a loan?
Permalink Submitted by Alan - IRA critic on Tue, 2015-06-30 22:48
Per the attached penalty exceptions chart, you can see that the higher education expense exception does not apply to qualified plans, only to IRA distributions. Therefore, for a taxable distribution, the IRA rollover would have to be done first. Alternatively, if the new employer offers plan loans and IF client has good job security and can pay back the loan, she might consider a loan as an option to a taxable withdrawal. Obviously, the loan has more potential pitfalls.