Traditional IRA early withdrawal for Qualified Higher Education Expenses

[delluser]

What is the name of your state? California

Hi all. Glad to find this site. I wasn't aware until now that I can take money from my traditional IRA without penalty tax as long as it's for qualified higher education expenses. So, I'm wanting to take out room and board expenses to cover the past 5-7 months.

I can only take this out if my university is an eligible educational institution. I've asked around at my school's ad building and nobody knows if the university is eligible. They all suggest that I ask a tax preparer.

I am a full time student at Loma Linda University. Is my early withdrawal eligible for exemption from the additional 10% tax?

Thanks in advance for the help.

 

[tecate]

This is from Section 529, routed from Section 72(t), which is the code section imposing the extra tax.


(5) Eligible educational institution
The term “eligible educational institution” means an institution—
(A) which is described in section 481 of the Higher Education Act of 1965 (20 U.S.C. 1088), as in effect on the date of the enactment of this paragraph, and
(B) which is eligible to participate in a program under title IV of such Act.

I would be very surprised if Loma Linda didn't qualify.

 

[abezon]

If the college participates in the federal student financial aid programs, it's an eligible institution. Can you get a student loan to attend?

 

[delluser]

If the college participates in the federal student financial aid programs, it's an eligible institution. Can you get a student loan to attend?

I'm pretty much living on loans right now.

thanks so much everyone for the replies

 

[LdiJ]

What is the name of your state? California

Hi all. Glad to find this site. I wasn't aware until now that I can take money from my traditional IRA without penalty tax as long as it's for qualified higher education expenses. So, I'm wanting to take out room and board expenses to cover the past 5-7 months.

I can only take this out if my university is an eligible educational institution. I've asked around at my school's ad building and nobody knows if the university is eligible. They all suggest that I ask a tax preparer.

I am a full time student at Loma Linda University. Is my early withdrawal eligible for exemption from the additional 10% tax?

Thanks in advance for the help.

I am not sure that room and board is a qualified higher education expense. I think its limited to tuition and fees. I tried to find a quick answer and was unable to. I need to double check it at the office.

In any case, don't forget that you still have to pay regular tax on the distribution, so make sure that you have enough withheld from the distribution to cover that.

Also, if you have children and you are receiving EIC, it can also have a big effect on how much EIC you receive.

Edit: After doing more research, room and board is NOT a qualified higher education expense. Only tuition and fees are qualified expenses.

You also must reduce the amount of the qualified expenses by any non-taxable grants or scholarships that you receive. So if you are receiving a Pell Grant, or any other kind of scholarship or grant, you have to reduce your qualified expenses by that amount, before determining how much of a retirement benefit can be subject to a waiver of the penalty.

 

[delluser]

I am not sure that room and board is a qualified higher education expense. I think its limited to tuition and fees. I tried to find a quick answer and was unable to. I need to double check it at the office.

In any case, don't forget that you still have to pay regular tax on the distribution, so make sure that you have enough withheld from the distribution to cover that.

Also, if you have children and you are receiving EIC, it can also have a big effect on how much EIC you receive.

Edit: After doing more research, room and board is NOT a qualified higher education expense. Only tuition and fees are qualified expenses.

You also must reduce the amount of the qualified expenses by any non-taxable grants or scholarships that you receive. So if you are receiving a Pell Grant, or any other kind of scholarship or grant, you have to reduce your qualified expenses by that amount, before determining how much of a retirement benefit can be subject to a waiver of the penalty.

Thanks for your reply. IRS publication 590 states that, if the student is at least half time, room and board are qualified expenses. This is where I got my information.
http://www.irs.gov/pub/irs-pdf/p590.pdf
Please let me know where you found information about it not qualifying so that I may read up on it further.

Thanks again.

 

[LdiJ]

Thanks for your reply. IRS publication 590 states that, if the student is at least half time, room and board are qualified expenses. This is where I got my information.
http://www.irs.gov/pub/irs-pdf/p590.pdf
Please let me know where you found information about it not qualifying so that I may read up on it further.

Thanks again.

I found my information in publication 970, under the general definition of qualified higher education expenses. It looks like publication 590 and 970 are contradictory.

 

[anteater]

I found my information in publication 970, under the general definition of qualified higher education expenses. It looks like publication 590 and 970 are contradictory.

Both Pubs use the same definitions. Room & board is qualified if at least a half-time student.

 

[tranquility]

The relevant definition at code sec. 529(e)(3)(B) is:

(B) ROOM AND BOARD INCLUDED FOR STUDENTS WHO ARE AT LEAST HALF-
TIME

(i) IN GENERAL

In the case of an individual who is an eligible student (as
defined in section 25A(b)(3)) for any academic period, such
term shall also include reasonable costs for such period
(as determined under the qualified tuition program)
incurred by the designated beneficiary for room and board
while attending such institution. For purposes of
subsection (b)(6), a designated beneficiary shall be
treated as meeting the requirements of this clause.

(ii) LIMITATION

The amount treated as qualified higher education expenses
by reason of clause (i) shall not exceed--

(I) the allowance (applicable to the student) for room
and board included in the cost of attendance (as
defined in section 472 of the Higher Education Act of
1965 (20 U.S.C. 1087ll), as in effect on the date of
the enactment of the Economic Growth and Tax Relief
Reconciliation Act of 2001) as determined by the
eligible educational institution for such period, or

(II) if greater, the actual invoice amount the student
residing in housing owned or operated by the eligible
educational institution is charged by such institution
for room and board costs for such period.
---------------------------------

 

[delluser]

Thanks everybody for your help.