What Documents Are Needed to Support an Educational Hardship Withdrawal?

College expenses, including tuition and room and board, averaged $13,600 a year for an undergraduate degree at a public university in 2012, according to the National Center for Education Statistics. These costs increased to $36,300 at a private, not-for-profit university. You can look to your individual retirement account to help fund these expenses, without tax penalties for early withdrawals. You must document your expenses with receipts, and by declaring your withdrawals on your tax forms.

Proof of Expenses

While you do not have to pay the education expenses directly with money from your IRA, you must keep a record of any qualified education expenses. This includes tuition statements from the college, which show the name of the qualified person you are paying expenses for. In addition, if the student is enrolled at least half-time, room and board expenses are qualifying education expenses. Save any statements showing room and board with the college, as well as rent receipts if the student lives off campus.

Form 5329

You will receive an IRS Form 1099-R from your IRA trustee detailing any withdrawals from your account. This information is also passed on to the Internal Revenue Service, so you need to account for this when you file your income tax returns. Declare the amount of your withdrawal that is used for qualified education expenses on line 2 of Form 5329. Enter the code "08" as the exemption number. If any of your withdrawal is not for education expenses and you are not at least age 59 1/2, you must calculate the additional tax penalty from Form 5329 on line 58 of Form 1040.

Other Nontaxable Education Benefits

Making a withdrawal from your IRA for qualifying education expenses does not guarantee the entire amount of your withdrawal is not subject to penalties. You must consider any other tax-free education benefits that you or the student have received. This includes Pell grants, educational IRA benefits and any employer tax-free education benefits. For example, if you have incurred $3,000 in qualified education expenses and you received $2,000 from your employer in tax-free education benefits, you can withdraw up to $1,000 from your IRA to pay for education expenses without penalties. If you withdraw $2,000 from your IRA, you will need to pay any applicable penalties on the additional $1,000 in withdrawals.

Considerations

Unless you are withdrawing Roth IRA contributions, or nondeductible traditional IRA contributions, the amount you withdraw from your IRA for education expenses will increase your taxable income. This can affect your eligibility for other forms of financial aid, such as student loans or other grants. If possible, you can avoid any problems with this by withdrawing from your IRA during the qualifying student's senior year, when all financial aid is already in place and cannot be affected by changes in income.

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About the Author

Craig Woodman began writing professionally in 2007. Woodman's articles have been published in "Professional Distributor" magazine and in various online publications. He has written extensively on automotive issues, business, personal finance and recreational vehicles. Woodman is pursuing a Bachelor of Science in finance through online education.

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