Question

IRA

Forum|Forum|6 years ago
May 16, 2020
1 reply
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I withdrew money from my IRA to pay for my sons college. The 1099-R just says early withdraw. Even when I put in the proper code in block 7 it still taxes these withdrawals

macuser_22

Employee

The 1099-R interview should ask about exceptions to the 10% early distribution penalty if you qualify.

See IRS Pub 590B. https://www.irs.gov/publications/p590b#en_US_2019_publink1000230919

Higher education expenses.

Even if you are under age 59½, if you paid expenses for higher education during the year, part (or all) of any distribution may not be subject to the 10% additional tax. The part not subject to the tax is generally the amount that isn't more than the qualified higher education expenses (defined next) for the year for education furnished at an eligible educational institution (defined below). The education must be for you, your spouse, or the children or grandchildren of you or your spouse.

When determining the amount of the distribution that isn't subject to the 10% additional tax, include qualified higher education expenses paid with any of the following funds.

Payment for services, such as wages.
A loan.
A gift.
An inheritance given to either the student or the individual making the withdrawal.
A withdrawal from personal savings (including savings from a qualified tuition program).

Don't include expenses paid with any of the following funds.

Tax-free distributions from a Coverdell education savings account.
Tax-free part of scholarships and fellowships.
Pell grants.
Employer-provided educational assistance.
Veterans' educational assistance.
Any other tax-free payment (other than a gift or inheritance) received as educational assistance.

Qualified higher education expenses.

Qualified higher education expenses are tuition, fees, books, supplies, and equipment required for the enrollment or attendance of a student at an eligible educational institution. They also include expenses for special needs services incurred by or for special needs students in connection with their enrollment or attendance. In addition, if the individual is at least a half-time student, room and board are qualified higher education expenses.

Eligible educational institution.

This is any college, university, vocational school, or other postsecondary educational institution eligible to participate in the student aid programs administered by the U.S. Department of Education. It includes virtually all accredited, public, nonprofit, and proprietary (privately owned profit-making) postsecondary institutions. The educational institution should be able to tell you if it is an eligible educational institution.

For more information, see chapter 9 of Pub. 970.

**Disclaimer: This post is for discussion purposes only and is NOT tax advice. The author takes no responsibility for the accuracy of any information in this post.**