IRA early distribution (37 year old) to pay for College expenses (Tuition and Cost of Living)
I am returning to College to pursue a Physician Assistant degree. I would like to know; if I pull money out of my traditional IRA / IRRA and even my 401k plan from my last employer, what penalties would I incur if any? I am aware that this would be considered taxable income, but would I incur any additional penalties? (Since I am younger than 59 1/2) i.e. 10% penalty / or as a CPA told me 30%??? Lastly, if there is no penalty, how must I report this on my tax return to ensure I am not penalized?
Permalink Submitted by Alan - IRA critic on Sat, 2019-05-04 23:13
The early distribution penalty is 10%, nothing higher. The penalty exception is not available for a 401k or other qualified plan distribution, so if you need to tap that balance, you would have to roll it over to an IRA before taking the distribution. The IRA penalty exception is claimed using Form 5329 and entering exception code 08 on the appropriate line. Review the definition of higher education expenses in IRS Pub 590 B so you know what expenses are qualified for the date you take the IRA distribution. Note that room and board are not eligible unless you are a half time student, nor are expenses covered by grants and scholarships.