Roth Distribution for Child’s Education
Customer is 53 years old. Converted to a Roth IRA in 2005. He has earnings on top of the conversion amount. He wants to use Roth for Child’s College Expenses. Will he be taxed or penalized?
Customer is 53 years old. Converted to a Roth IRA in 2005. He has earnings on top of the conversion amount. He wants to use Roth for Child’s College Expenses. Will he be taxed or penalized?
Permalink Submitted by Alan - IRA critic on Tue, 2013-03-12 17:13
Since his conversion is over 5 years old, any distributions up to the amount of the conversion are tax and penalty free. If this amount is exceeded, then earnings are being distributed and they are taxable, but the penalty can be waived for amounts paid for qualified higher education expenses. Penalty waiver would be claimed on Form 5329.
Permalink Submitted by Julie Brangenberg on Tue, 2013-03-12 18:31
Would it be best to wait to take the earnings in the year the child is in college, so that they have expenses to show proof?
Permalink Submitted by Alan - IRA critic on Tue, 2013-03-12 19:09
Yes, because the penalty waiver is only applicable if the year of distribution and payment of qualified expenses is the same. The earnings only come out after the full amount of contributions and conversions has been distributed. Of course, it would be best to leave the earnings untouched until customer reaches 59.5 as they would then be tax free.