- How Much Annually Can I Take Out of My IRA?
- How to Take Medical Hardship IRA Distributions on a Tax Return
- Can a Mentally Disabled Person Have a Qualifying Child Exemption?
- Can I Take a Federal Tax Deduction for My Son While He's Away at College?
- Traditional IRA Distributions for College Education
- IRA Withdrawals for Higher Education
The Internal Revenue Service recognizes qualifying higher education expenses as an exemption from the additional tax on early withdrawals from individual retirement arrangements. As long as you have qualifying expenses, there's no limit to the number of times you can use the higher expenses exemption for early IRA distributions.
IRA Penalty Exception
When you take an early IRA distribution, you usually have to pay a 10 percent tax penalty on top of the income taxes you owe on the distributions. However, when you use the money for qualifying higher education expenses, you can exempt that portion of the distribution from the 10 percent additional tax penalty. You still, however, have to pay the income taxes on the distribution.
Qualifying Education Expenses
The definition of "qualifying educational expenses" when removing money from an IRA is broader than the definition used for other tax breaks. Not only can you include tuition and required fees, but you can also include books, supplies and equipment. In addition, if the student is enrolled at least half-time, you can also count room and board.
Obviously, the exception applies when you're paying qualified expenses for yourself, but you can also use the exception to pay for your spouse, your children or other descendants, such as grandchildren. For example, if your son decided to go for a doctorate degree, you could take a distribution to pay for his room and board without having to pay the 10 percent additional tax on early distributions.
When you file your taxes, all of your distributions during the year are combined for reporting purposes. For example, if you took a $10,000 distribution in January to pay for the spring semester and a $10,000 distribution in September, you'd combine the two distributions into one $20,000 for tax purposes. When you file your return, you complete Form 5329 to report the exemption, using code "08" next to line 2.
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