Tax Tip: Penalty-Free Treatment of Higher Education Costs

October 24th, 2017

picTapping an IRA before age 59½ to pay higher education costs is penalty-free. Expenses covered under this exception are college tuition, textbooks, supplies, and the cost of room and board for students enrolled at least half-time. To qualify, the payout must cover education costs paid in the year of the withdrawal. Payouts can be used to pay expenses for the IRA owner, spouse, child or grandchild. Note that even if the distribution is exempted from the 10% penalty, income tax is due.

Non IRA plans do not qualify.  Early payouts from 401(k)s, 403(b)s, etc to fund education don’t get penalty-free treatment.

Let us know if you have any questions.

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